Cashflow is important, as I have mentioned in an earlier article here.
One of the ways to improve your cashflow is through dividend investing. Passive dividend investing can help build a form of passive income. Not only does it improve your cashflow, it also puts money into your pocket, and you do not need to do much to maintain it.
Some of my friends asked me, why invest so passively for dividends when one can do short term guerilla trading, entering and exiting the market in a short period of time and earn a lot.
To me, whether a market goes up and down is mostly due to traders. Some will lose, some will gain. But mathematically, logically and theoretically, the overall gain of traders is equal to the overall gain of passive investors.
Why is it so? It is because trading is a zero sum game, so on average, some the traders would have gains more than the passive investors, and some would have gains less than the passive investors. The total gains of all winning trades minus the sum of all losing trades would be equal to the total gains (or loss) of the market. In addition, the gains of an average trader would be the same as that of the market.
The gains of passive investors, however, follow the market, excluding brokerage fees, and minus the effort and energy used to identify stocks in which to execute trades.
So, if we think we are average, or below average, isn't it simpler to just invest passively? Isn't it simpler to buy and keep stocks for the long term?
Why dividend investing?
Dividend investing works well for many investors. Dividend investing in defensive sectors will continue to provide a steady stream of income – income that can be counted on whether the market moves up or down. This stream of passive income provides cash which can be used or reinvested. Reinvesting the dividends will help the overall investment grow at a compounded rate (excluding brokerage fees). Adding to the fact that stock values traditionally increase over time, the new shares that are continually bought with received dividends will also increase, and at the same time, increasing the amount of dividends received.
Most dividend stocks (bank stocks are an exception) are also usually not as volatile. And because for defensive sectors, where dividends-payable are usually stable, investors face lesser risks. This is especially important and useful in a bear or sideways market, where investors will find it hard to count on capital gains to give them the returns they need. Dividend paying stocks also work well in both bear and bull market cycles. During a bear market, dividends provide a return on investment when gains from price appreciation are almost non-existent. During a bull market, dividends provide additional returns on top of capital gains.
Finally, for the Straits Times Index, it traditionally gains 7% compounded per annum. Yet in a bear market as of now, there are many a defensive dividend stock that yield 10% per annum. With dividend reinvestments, that will yield 10% compounded per annum. And all these are excluding possible capital appreciation!
Sadly, in a bull market with fast and furious price increases to seduce investors, many forget about the consistent returns and safety of the such stocks. History has proven the benefits of dividend stocks in almost any market condition. And with dividend reinvestments, one can generally expect increasingly greater dividend income.
Stocks, Personal Finance, Personal Development,
Wealth, Income, Trading, Investing, Business
test4
Friday, May 1, 2009
Thursday, April 2, 2009
Importance of Cash Flow
Importance of cash flow
The basic fundamentals to the survival of all businesses is cash flow. Without cash, you can’t function; that’s a fact. Managing of cash flow is something very important for businesses. Cash within businesses can be compared with blood in animals. Blood is the source of life for animals like cash is the source of life for businesses.
Our lives is somewhat like businesses; you can’t function without cash. That means, we should treat our life like a business. Not only do we need to have our own financial statements, we also need to manage our cash flow. Of course, as with businesses, the higher our cash flow, the merrier! Cash is a basic fundamental for our survival in this era. A constant cash flow, especially passive ones, helps greatly in enhancing our survival in this world.
So… what does this tell us? We should all look to increase our cash flow, with the all too well-known active and passive income sources. Look into increasing your active income, and focus on investing prudently in long term income generating assets.
Increasing Active Income
For this part, I will take a leaf from Adam Khoo’s book.
In mathematical terms, Active income = Value * Time * Scalability,
where
Value = the amount you are paid per hour
Time = the amount of time you spend for that value
Scalability = the number of people you can reach out to for that amount of time you have spent.
Increasing Passive Income
There are many books and articles online about passive income. One simple way would be to dump everything into ETFs tracking indexes, and let it compound. It’s an especially good time to do so during a recession (like now). It’s a great way to increase your networth and assets. However, my focus is on increasing cash flow. Thus, I would suggest investing in dividend stocks, REITs, Trusts, etc. The growth of your cash might be slower than throwing into ETFs or investing prudently into great stocks with minimal dividends and compound your wealth like Warren Buffett, but the increase in cash flow will save you trouble at times on deciding whether to sell some of your wonderful assets when you need the cash. As a matter of fact, investing in Trusts or REITs at the right time can generate anywhere between 14% to 30% dividend yield!
Other forms of passive incomes include affliate marketing, blog monetizing, property rentals, etc, which I will not touch on in this article. But hope you get the drift.
Conclusion
In short, cash flow is important, and it would be great to focus on building, improving and increasing our cash flow. This is especially important and useful for young personnels and fresh grads like me.
Article has also been accepted by http://www.associatedcontent.com/article/1629762/importance_of_cash_flow.html?cat=3
The basic fundamentals to the survival of all businesses is cash flow. Without cash, you can’t function; that’s a fact. Managing of cash flow is something very important for businesses. Cash within businesses can be compared with blood in animals. Blood is the source of life for animals like cash is the source of life for businesses.
Our lives is somewhat like businesses; you can’t function without cash. That means, we should treat our life like a business. Not only do we need to have our own financial statements, we also need to manage our cash flow. Of course, as with businesses, the higher our cash flow, the merrier! Cash is a basic fundamental for our survival in this era. A constant cash flow, especially passive ones, helps greatly in enhancing our survival in this world.
So… what does this tell us? We should all look to increase our cash flow, with the all too well-known active and passive income sources. Look into increasing your active income, and focus on investing prudently in long term income generating assets.
Increasing Active Income
For this part, I will take a leaf from Adam Khoo’s book.
In mathematical terms, Active income = Value * Time * Scalability,
where
Value = the amount you are paid per hour
Time = the amount of time you spend for that value
Scalability = the number of people you can reach out to for that amount of time you have spent.
Increasing Passive Income
There are many books and articles online about passive income. One simple way would be to dump everything into ETFs tracking indexes, and let it compound. It’s an especially good time to do so during a recession (like now). It’s a great way to increase your networth and assets. However, my focus is on increasing cash flow. Thus, I would suggest investing in dividend stocks, REITs, Trusts, etc. The growth of your cash might be slower than throwing into ETFs or investing prudently into great stocks with minimal dividends and compound your wealth like Warren Buffett, but the increase in cash flow will save you trouble at times on deciding whether to sell some of your wonderful assets when you need the cash. As a matter of fact, investing in Trusts or REITs at the right time can generate anywhere between 14% to 30% dividend yield!
Other forms of passive incomes include affliate marketing, blog monetizing, property rentals, etc, which I will not touch on in this article. But hope you get the drift.
Conclusion
In short, cash flow is important, and it would be great to focus on building, improving and increasing our cash flow. This is especially important and useful for young personnels and fresh grads like me.
Article has also been accepted by http://www.associatedcontent.com/article/1629762/importance_of_cash_flow.html?cat=3
Wednesday, March 25, 2009
Networth
The recent rally helped move some of my equities to green. That's very fortunate for me.
Then comes another major news.
CPF Education Loan: The total for repayment sums up to nearly SGD$25k! There's an interest of 2.6% p.a.
It's thus time to execute my plan of paying this debt.
Currently, my sources of income include
1) full-time job
2) tuition
3) stock dividends
After deducting expenses and home allowance, I have around $3k to spare. Some, I will want to use for investments. Others for this debt. Will have to consider slowly how I'm going to allocate this.
In addition, I have a small amount locked in fixed deposit. I will be taking it out soon to use a bit to repay my education loan. The remaining will be reserved as opportunity funds. However, for the amounts I have already in stocks like SPH and capitaland, I will be leaving them inside to capitulate on the higher dividend percentage.
I will continue to build on my cashflow and use all the dividends to repay my education loan.
Then comes another major news.
CPF Education Loan: The total for repayment sums up to nearly SGD$25k! There's an interest of 2.6% p.a.
It's thus time to execute my plan of paying this debt.
Currently, my sources of income include
1) full-time job
2) tuition
3) stock dividends
After deducting expenses and home allowance, I have around $3k to spare. Some, I will want to use for investments. Others for this debt. Will have to consider slowly how I'm going to allocate this.
In addition, I have a small amount locked in fixed deposit. I will be taking it out soon to use a bit to repay my education loan. The remaining will be reserved as opportunity funds. However, for the amounts I have already in stocks like SPH and capitaland, I will be leaving them inside to capitulate on the higher dividend percentage.
I will continue to build on my cashflow and use all the dividends to repay my education loan.
Thursday, March 12, 2009
Stock Market Plunge
Haven't been updating this site due to my "busyness".
Anyway, this is a post on the realisation that I have made quite a number of investment mistakes, hence probably burnt my backside badly this time round.
What Benjamin Graham mentioned was true. When Mr. Market is on a emotional roller coaster ride, you can demand a price for the stock, and it will eventually reach. Indeed, the prices of many stocks have reached my target price. But, I have little bullets left to buy!
What happened first was that I went into the market too early. Too impatient. Thinking I knew a lot when I'm only just a newbie. Did I have a reason for buying? Not really for a few of the stocks. Probably the only reason I can come up with is greed.
Then the stock market plunged further. Shit. Caught. And then a bear rally came. My thoughts were: "Oh, I'm going to miss the boat!". In I went with more savings to average down. And right after that, it dropped further.
So now, my portfolio loss is at 38.4%.
As of today, my portfolio:
Then after doing so many things, I finally realised the fundamentals of wealth. Cashflow. It is more important to have a net flow of cash into your pocket than increasing the value of assets (or in this case, the value of the stocks). For example, I can buy SPH at 3.65, and with a current loss of ~35%. However, the dividends will still be coming in. I will still have cash to ride out this crisis. No matter the value of the stock, as long as the company remains afloat, the cashflow will still be positive for me. The value of dividend stocks really stands out in a recession like this by improving your cashflow.
My main worry now is with China HongXing. Originally backed by 16 cents SGD per share, prices has fallen to unprecendented levels due to fears of accounting frauds. However, if the accounting is proven to be correct, the expected value I have calculated is around 40 cents.
Expensive lesson learned:
1) I have to learn to be more patient in this game of investment.
2) Have a better reason for investing into the company.
3) Experience really counts.
"Experience comes primarily from Failure, and Success without experience is luck."
"Good judgement comes from bad experience, and a lot of that comes from bad judgement."
Anyway, this is a post on the realisation that I have made quite a number of investment mistakes, hence probably burnt my backside badly this time round.
What Benjamin Graham mentioned was true. When Mr. Market is on a emotional roller coaster ride, you can demand a price for the stock, and it will eventually reach. Indeed, the prices of many stocks have reached my target price. But, I have little bullets left to buy!
What happened first was that I went into the market too early. Too impatient. Thinking I knew a lot when I'm only just a newbie. Did I have a reason for buying? Not really for a few of the stocks. Probably the only reason I can come up with is greed.
Then the stock market plunged further. Shit. Caught. And then a bear rally came. My thoughts were: "Oh, I'm going to miss the boat!". In I went with more savings to average down. And right after that, it dropped further.
So now, my portfolio loss is at 38.4%.
As of today, my portfolio:
| Stock | Average Price Bought | Current Price | Gain / Loss(%) | No. of lots |
| Breadtalk | 0.37 | 0.3 | -18.92% | 5 |
| Capitaland | 2.26 | 1.93 | -14.60% | 3 |
| CoscoCorp | 2.67 | 0.705 | -73.60% | 2 |
| | 0.175 | 0.065 | -62.21% | 68 |
| DBS | 8.26 | 6.9 | -16.46% | 1 |
| Darco | 0.07 | 0.045 | -35.71% | 60 |
| | 3.65 | 2.38 | -34.79% | 6 |
| Total Cost | $60026 |
|
|
|
| Total Current Value | $37000 |
| Total Gain/Loss | -$23026 |
| Overall Portfolio Gain/Loss | -38.36% |
Then after doing so many things, I finally realised the fundamentals of wealth. Cashflow. It is more important to have a net flow of cash into your pocket than increasing the value of assets (or in this case, the value of the stocks). For example, I can buy SPH at 3.65, and with a current loss of ~35%. However, the dividends will still be coming in. I will still have cash to ride out this crisis. No matter the value of the stock, as long as the company remains afloat, the cashflow will still be positive for me. The value of dividend stocks really stands out in a recession like this by improving your cashflow.
My main worry now is with China HongXing. Originally backed by 16 cents SGD per share, prices has fallen to unprecendented levels due to fears of accounting frauds. However, if the accounting is proven to be correct, the expected value I have calculated is around 40 cents.
Expensive lesson learned:
1) I have to learn to be more patient in this game of investment.
2) Have a better reason for investing into the company.
3) Experience really counts.
"Experience comes primarily from Failure, and Success without experience is luck."
"Good judgement comes from bad experience, and a lot of that comes from bad judgement."
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