How To Put The Icing On Your Portfolio

My washing machine finally gave up the ghost the other day. Sadly, it had been on its last legs for a while. But I was reluctant to ditch my trusty laundry contraption.

The old machine was easy to use; I could operate it almost blindfolded and it was reliable up to the bitter end.

But now I have to get my head around a new machine. That’s not quite as straightforward as it might appear.

Fast spin

For goodness sake, how many different wash-options do they really need to provide with modern laundry devices?

What with unique settings for “denim”, “sportswear”, “bedding” and “dark garments”, heads can spin faster than the 1,600 revolutions per minute that these new machines are reportedly capable of.

And who, I ask you, would not want to choose the “stain removing” setting? What’s the point of doing laundry, if we don’t want to remove any unsightly blemishes?

So, choice is something that we are faced with constantly. Whether it is a trip to the supermarkets, selecting from a myriad of television channels or looking through menus at restaurants, we are required to make judgment calls, all the time.

It is no different in the world of investing.

Important choices

We are regularly called upon to make important choices about where we should be putting our money, based on the information we have at hand.

Consider, for instance, the building of our share portfolios. Where should we start?

Should we opt for growth, income or something more value oriented?

Those decisions could shape our financial destiny.

They can determine whether we will have enough money for our retirement or whether we are going to work until we can’t work anymore.

So it is important that we get it right.

Cash is king

Income investing, in my view, should be the bedrock of any portfolio. It could provide us with a reliable stream of cash that we can do with as we like, when we like.

We can spend the money, we can reinvest it into more shares, or we could, if we wish, put the money into a different asset class, altogether. The choice is ours.

Income shares tend to be associated with more established companies.

These types of companies often don’t require as much cash to grow their business. Consequently, they can afford to pay out more to shareholders in the form of dividends.

Cash is king, so it is important, if we invest in income shares, to check that the company can afford to reward us, sustainably, for years to come.

There are never any guarantees that next year’s dividend will not be cut. But there are lots that we can do to minimise the disappointment.

Growing tension

While income shares could provide a solid base for our portfolios, they may not always deliver the capital growth that we might need.

So, it is important to consider a few growth shares too. Exactly, how many constitutes “a few” depends on our penchant for risk.

Younger investors might be able to tolerate more risk, while older investors might need to think a little more carefully about assuming too much risk.

That said, taking on some measured risk could help improve our investing returns. The key, however, is to identify the right growth shares to follow.

Value prospects

Value is sometimes said to be the Holy Grail of investing.

While income may be seen as the investing cake and growth as the icing on the cake, value investing is the cherry on the icing on the cake.

It could be argued that all investing disciplines should be about looking for value. But value investors specifically look for shares that have been unfairly punished by the market.

The rewards that could ensue from finding the right value shares could be substantial. But they can also be as rare as hen’s teeth.

Get it right

Getting it right is something that we should take seriously, when we invest. It could affect our financial destiny.

Here at Motley Fool Singapore we take investing very seriously. There are no short cuts. There are no magic formulas. There is just a lot of hard work and in-depth research.

So, let us show you what we mean when we say we do it the Stock Advisor way.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.