Dividend portfolio formation. Before we go into the next section, here is a quick recap of what we have gone through. We started out with the basics, then moved on to dividend companies, the misconceptions surrounding them. The key ratios and their implications, how to screen and filter out for quality dividend stocks based on dg and DS mandates. We went through the weaknesses of using this way to screen for quality dividend stocks and then proceed on to using qualitative analysis. In this section, we will be going into the nitty gritties of how to form and manage your dividend portfolio as a whole.

Lots of interesting materials to get into Alright, take a moment to read the disclaimer. Here are the objectives for the first part of this dividend portfolio management session. Let's start off with portfolio formation by understanding two simple intuitive concepts, core dividend holdings and side dividend holdings. Building your core dividend holdings when it comes to forming your core dividend holdings. Core dividend holdings, as its name suggests, should consist of high quality solid dividend paying investments that focuses on dividend sustainability and doesn't require as much tracking as the investments in the side dividend holdings. Here are some ways to form it.

I would recommend using D s stocks, sweetspot dividend stocks, exceptional rates, investment grade bonds and other dividend funds that have good track records. If you look over here Here, these are some examples of how my other dividend investor friends have built their core dividend holdings combination. One 100% allocated to DS stocks, combination to 50% sweetspot and another 50% of high ranking dsx stocks, combination 350 percent sweetspot stocks 25% rates 25% bonds, combination for 25% bonds 25% dividend funds 25% reads 25% Ds stocks and combination 550 percent bonds 25% reads 25% sweetspot stocks as you can see, there are so many ways to form your core dividend holdings. But do take note of a few issues. Number one, don't over or under allocate out allocating less than 15% of your portfolio to an investment will result in wasteful diversification. Ideally, the reasonable man would want the number to be big enough so that portion of the investment makes a difference in the overall returns get small enough so that the investment can achieve its diversification benefits.

Now, from my point of view, committing less than 15% to fund a particular type of investment makes little sense, these small allocation holds little potential to influence overall portfolio returns. On the other hand, committing more than 50% to an asset class poses the danger of over allocation with results in over concentration. So do take note of these Miss allocations. Number two sweetspot stocks are those that have both high d G and D s rankings. They share similar characteristics such as being dominant or have a niche position in their industry, they probably have global operations. their earnings are relatively less volatile than their peers and do not take on much debt.

These stocks are difficult to find and even if found are usually priced on attractively. So my tip for you is this. If you can't find enough sweetspot stocks focus on DS stocks. Number three, take note of the cost of each investment type relative to your investment capital and strategy. By cost I mean the expenses relating to transaction costs when buying and selling dividend stocks, management fees when investing in bond funds, etc. So let's say you only have $1,000 to invest.

If your broker charges you $25 per transaction that would amount to 5% of transactions. Cause if you buy and sell a dividend stock, if you only have 1000 to invest, stick to the buy and hold strategy. Buy only one dividend stock and do not engage in rebalancing your portfolio. Unless if you really have to. The key point is this, pick the right investment strategy and keep your costs low. Number four, combination and expectation of returns.

Whatever combination you choose the notion of sustainability, dividend sustainability, to be more specific, should encompass and govern your entire core holdings. This implies that the overall yield in your core dividend holdings might be less than the sign dividend holdings and thus, you should not expect a high yield relative to your side holdings. But what you ought to expect is for the yield in your core holdings to last for the many years ahead. Building your Side dividend holdings. Now we get on to the more exciting part, going to details on how to form your side dividend holdings. The side holding should contain highly ranked dividend growth stocks or Digi stocks, exotic reads or reads that have recently been listed or admitted to small cap bond funds.

You could even include a business trust. The key idea behind side dividend holdings is to take advantage of an opportunity. For example, a business trust decides to sell off 60% of their real estate assets to another buyer. This was announced in late 2017. The business trust does not mention that they will return the extra cash to unit holders and the market has yet to fully price and increase in dividends. In fact, investors got impatient and sold their units early.

Knowing this and opportunity has presented itself You take a portion of your capital and invest in this business trust and wait for a few months to a year or at most two years, eventually and hopefully you'll be rewarded with increased dividends. If the business trust doesn't return the cash to unit holders, then they must have found another potential business to invest in. If they have not, you must find out the reasons why the delay in the dividend payout and if the reason is unsatisfactory, you should look for another dividend opportunity. This is what it means to form and manage your side dividend holdings. And it will require a lot of understanding and tracking from your site. This applies to all selected Digi stocks that you plan to add into your site holdings as well.

Moving on to important portfolio management concepts, concepts such as strategic asset allocation and tactical allocation can be applied to dividend investing. You can actually view your core dividend holdings as your strategic asset allocation initiative and your side dividend holding as your tactical asset allocation initiative. Different investors can form different sizes and mixture between their core inside holdings. This is what the orbs are shown here for. Now, how big or small your core dividend holding is going to be relative to your side dividend holding depends on your risk appetite and your ability to spend the time to track your side portfolio. Therefore, before forming the size of your core inside holdings, start with assessing your tolerance for risk and your investing timeframe.

Can you reasonably foresee not needing your invested money for an extended length of time? If that's the case, it may imply that you can be more aggressive and allocate more to your side holdings Do you remain calm, cool and collected when the market is jumping up or down? If the answer is no, then a larger allocation to core holdings is advisable. Things like these. Align your risk tolerance with the size of your core and side dividend allocations. There are many online risk profiling quizzes you can take.

The best of the free ones would be from low trackman Financial Services, I have uploaded their PDF in the attached do it and understand where your risk tolerance lies before forming your holdings. Before I move on to other dividend investments to spice up your dividend portfolio, I would like to address this common question how many dividend companies to own earlier we suggested that the size of allocations across core inside holdings should be based on your risk tolerance. Over here we will address the right number of do a PhD in companies to hold for both core dividend holdings and side dividend holdings combined. Now, to be honest, there's no right number as to how many one can hold but there is a limit. Personally, I keep the number of individual company stocks in both my dg and DS holdings to under 10. This is a low number to some, but because of my lifestyle and my other work commitments, I know that I can only effectively keep track of 10 dividend stocks or at most 20.

But what happens if you hold more than 20 dividend company stocks upwards of 3040 or 50 stocks? at such a high level of holdings it becomes more of a dividend fund and managing your portfolio becomes more quantitative and qualitative. Since keeping track of quantitative information is far more efficient than reading tons of qualitative information about dozens of dividend companies within a peer You'd have time unless you have the time and expertise necessary to manage such a large number of holdings without incurring excessive costs when rebalancing. I propose that it is best to leave this type of collectors portfolio to professional fund managers or robo advisors, if diversification is what you want, then reduce your dg and DS stocks and increase allocation to dividend funds or ETFs. As a guideline when it comes to optimizing your dividend company or equity holdings, my suggestion is to allocate five dividend stocks for your core holdings and no more than two for your side dividend holdings for a start.

This is just a recommendation for the new dividend investor populace. Moving on to other asset classes that help form a dividend portfolio. Now that you have a better idea of how to build your core Inside dividend holdings, the size allocations and how many companies to hold, we move on to look at the other types of investments that can complement your dividend portfolio as a whole. Do know that for reads and master lease partnerships portions, I've placed them in the bonus lecture instead, as I need more time and space to do those topics justice. With that said, let's talk about dividend funds. dividend related funds, the main difference between investing and dividend funds, be it via an ETF or a unit trust compared to investing in stocks is that you're not required to do much of the heavy lifting, such as tracking diversifying and buying decisions.

You can easily buy these dividend funds through online platforms like vanguard.com or fund supermart.com. So why is there a need to go through the trouble of creating your own dividend portfolio while there are lots of other dividend funds out there where you can devote your entire capital to. Firstly, most of these funds reduced their dividend payouts during the financial collapse of around 2007 through 2009 and then began increasing them. Many individual dividend pickers avoided this problem and grew their dividends through this, but these ETFs did not. So if you're looking to have a very high probability that dividends will increase each and every year, then dividend ETFs may not be the optimal strategy. Secondly, they have expense ratios that reduces your dividend yield.

The expense ratios of passive dividend ETFs are not as high as actively managed dividend funds, but they are still costly and will eat into your total return. It's true that if you buy individual stocks, you'll have some of your own expenses to bear but With a moderately large portfolio and a fairly small number of transactions, you can get your expense ratio below these ETFs. Lastly, many of the dividend yields aren't particularly high even among the so called high yielding ones. If you select your own dividend stocks, you can build an income stream that suits your goals. If you're looking for higher income from ETFs, you might have to look for preferred shares ETFs or master Limited Partnership ETFs because these dividend index funds don't offer high yields. Nevertheless, dividend ETFs can be great investments, especially for people who don't want to pick individual stocks.

Dividend ETFs can be a wonderfully low maintenance way to achieve good returns. Here are some recommended dividend ETFs for your consideration. bonds and bond funds. There are many types of bonds, B Corporation bonds, publicly owned utilities bonds state, local and federal governments bonds. But in a nutshell, all bonds are simply debt instruments. When you invest in a bond, what you are doing is basically lending money to an entity, be it a company or a government and these entities promise to pay you a pre agreed interest, also known as coupon and at the end of the period or the maturity date, you will receive back the original investment 100% of it.

When it comes to bond funds, they are basically mutual funds that invest in bonds. Put another way, one bond fund can be considered a basket of dozens or hundreds of underlying bonds holdings. Most bond funds are comprised of a certain type of bond Such as corporate or government and further defined by time period to maturity, such as short themes less than three years, intermediate term, three to 10 years and long term which is 10 years or more. Therefore, there is no loss of principle as long as the investor holds the bond until maturity and if the entity does not declare bankrupt, when people talk about investing in bonds, they are actually referring to bond funds. This is because in Singapore and in the US, most direct bond investment requires more than $100,000 capital outlay except Singapore savings bond. Investing in bond funds is usually the more efficient way for two reasons.

Number one, you do not need as big a capital outlay as if you were to buy all the bonds in the fund. You can even start bond fund investing Just $1,000 and number two, there are many bond fund options for you to choose based on your desired risks and returns. Some things to take note when investing in bond funds. If you plan to place a bond mutual fund into your dividend core or side holding, you need to understand the risks involved in doing so, let me explain. Bond mutual funds are not valued by a price but rather by the net asset value nav of the underlying holdings in the portfolio. If bond prices are falling, the bond fund investor can lose some of their principal investment.

Therefore, some bond funds carry greater market risk than bonds because the bond fund investor is fully exposed to the possibility of falling prices. Whereas the bond investor can hold his or her bond to maturity, receive interest and receive their full principal back at maturity, assuming the issuing identity does not default. So, this is something to take note of before you buy into a bond mutual asked whether the fund has an exit maturity date and if the bond fund is capital protected, these are the type of bonds you can consider global bond funds suitable for core holdings. Regional bond funds, for example, emerging market bond funds or European bond funds suitable for side holdings and country specific bond funds suitable for both depending on further research. Another thing to take note of is interest rate when interest rate is expected to rise and investor may consider adding individual bonds to their portfolio.

This will keep principle stable whilst they enjoy the interest received. investors may also consider a bond laddering approach which will consist of buying bonds with various maturities as interest rates rise when interest rates are expected to decline. And thus bond prices are rising, Bond mutual funds are a better choice. Some fixed income investors also like to combine bond mutual funds with individual bonds within their total portfolio. This acts like a hedge or a diversification strategy to protect against multiple economic outcomes. There is a lot more I would like to talk about bond investments and how it fits into your dividend portfolio, but this will be for another class for another day.

All right, here is a summary on what we have gone through thus far.