Thursday 11 November 2021

To Concentrate Or Diversify?


That's not difficult to answer.


There's usually 2 situations where one tends to concentrate or diversify - depending on one's situation.


1)  Got craft? 

When you are clueless to what doing you, of course being diversified is one way to ownself do less harm to ownself.

But if you believed "luck" is preparation meeting opportunity; when opportunity presents itself, of course you would concentrate and strike while the iron is hot!

That's what edge over others or craftmanship is for!


2)  Up mountain or down mountain?

When you have nothing else to aim for, or is wary of giving back to the markets what you have gained so far, then diversification to protect wealth may be the preferred choice.

It could also be due to shrunken baxxs due to old age... 


But if you're like that Indonesian Chinese who went from $1 billion to $7 billion with his concentrated bet on Tesla, and is still aiming to reach $100 billion, then concentrated bets would be the poison of choice.

He reminds me of the tale of the bird with no legs... Got to keep flying... Always on the way...

What has age got to do with anything!?






 

4 comments:

  1. What we see as concentration could be just the tip or upper parts of their wealth pyramid.

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    Replies
    1. CW,

      Only we know ourselves best whether we are more suited for concentration or diversification ;)

      Although there are times where outsiders "looking in" have a better picture than the individual "looking out" from within ;)


      1. The stock investor who is married in his 30s probably thinks he's being "diversified" with 50 stocks in his portfolio... You know, a single stock not more than 2% of his entire portfolio thingy...

      Yet he blindspot "forgets" his entire net worth is quite concentrate onto his single property ;)

      At that is true probably for the majority of Singaporeans, whether financially literate or not.

      That's how big daddy got most of everyone by their baxxs! That's social engineering for the win!


      2. The old fogey who is a "rabid" and very vocal fan of voluntarily contributing to CPF in his early 50s, most casual listeners can be forgiven thinking this old fogey is very concentrated with "Save More" into CPF...

      That's where Trust But Verify comes in!

      Our opinion may change if we knew this old fogey have 2 private properties - one for staying, one for renting.

      Got a stock portfolio that provides dividends MORE THAN the CPF interests he is getting...

      That looks more like Earn More diversification to me ;)

      Shh...




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    2. Is it good to be busy for an individual coming down the mountain? I have told my bosses before, that at 60, I do desire more "me" time but workload seemed to go up. Didnt find time to read and make comments to blogs till on weekends. 😜

      Here are my thoughts and plans on building up my and my Mrs' CPF.

      Why we build up our CPF. It is to have peace of mind in our golden years. There is nothing like knowing there is this pile of savings that is not affected by the whims and fancies of Mr Market. And it is really nice that this pile of savings also generates a decent amount of "passive income" that we could actually live comfortably on in our retirement.

      What we planned to do in Jan 2022.
      Of the upcoming changes to the CPF policy in 2022, only two matters to us as seniors (60 & above) who has more than FRS in our RA.

      1. Increased contribution rates by 2%. That is up from current 16.5% to 18.5% in 2022. This translates to $1,100 pm in MC (mandatory contribution) from salary. Currently it is $990 pm.

      2. Top up to MA is governed by BHS (basic healthcare sum) only instead of the lower AL ($37,740) or BHS. This means for the first time, I might be able to get some tax relief from topping up my MA.

      What I planned to do in Jan 2022.

      Step 1 (wife)
      As my wife is retired, I will top up her MA to 2022 BHS, VC3A of $37,740 and RSTU (retirement sum top up) $9,000 to her RA to keep pace with 2022 ERS.

      Step 2 (self)
      Top up MA to 2022 BHS, VC3A 18.5% of $102,000, and RSTU $9,000 to RA to keep pace with 2022 ERS.

      Assuming next year BHS goes up to $67,000 (ie increase by $4,000 - estimate only), next year ERS increase by $9,000, the estimated amount of money I need to put aside :

      Wife
      MA : ~ $4K (proj new BHS $67K)
      VC3A : $37,740
      RSTU RA : $9K
      Sub total : $50,740

      Self:
      MA : ~ $4K
      VC3A : 18.5% of $102,000 = $18,870
      RSTU to RA : $9K
      Sub total : $31,870

      Total cash to set aside : $82,610

      Should the BHS increases by only $3,000 to $66,000 in 2022, then cash needed would be less by $2,000.

      Mathematically, my CPF total amount across all accounts (OA,SA,MA, RA) will hit $1.8M in 2022. And progressing along this trajectory, it should hit $2M in 2024.

      Is it a wise move to be so heavy in CPF ? 🤷‍♂️ What I know is that I feel comforted and it helps me sleep well at night.

      My parting question is when or at what point in life does an individual become disinterested in money (if at all). I see very very old people still wanting to build wealth. 🤑

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    3. mysecretinvestment,

      1. With the salary you getting, your bosses would be silly to let you do as you like... If don't squeeze blood from you now, wait till you retire?


      2. I'm all for mandatory CPF increases - especially when I add 1%, employer side will add 1% too ;)

      I remember a time when CPF was 25%/25% - good times! Sadly my salary too low then...

      Youths today who voluntarily contributes to CPF a bit "distracted". They never ask if I contribute 20%, why should employer's share be 17%?

      If more CPF is good, better, best, don't they want their employer to "voluntarily" contribute this 3% for them too?

      I mean if employer side increase 3% to 20%, I don't mind increasing 3% my side to 23% as part of horse trading negotiations! LOL!

      What do youths do? Meekly voluntarily contribute to CPF and throwing away their leverage...


      3. Well, that's why we are not billionaires! To be a billionaire, we need 1,000 millions. That means we have to pass through 100 million, 10 million, 1 million milestones.

      These milestones are mountain "peaks" for most of us.

      Would anyone with 100 million still scale another higher mountain peak to increase their net worth 10 fold to be a billionaire?

      Some with "only" 1 million to their name have no problem declaring they are walking down the mountain...

      1 million in Singapore is still HDB heartlander lifestyle. But 1 million retire in Bali, Chiang Mai or Ho Chi Minh City super comfortable!

      Those seniors in their 80s or 90s we see queuing for Toto cascade draws are no different from Warren Buffett, Li Ka-shing, George Soros, etc.

      They are still on the way?

      Indeed. How much is enough?


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