Reiterating the Importance of Diversification

In late August, based on the "all-in" action of a Singaporean into one stock (singpost), I wrote a post regarding which one stock I have full conviction in for me to "show-hand" into the one and only stock (if I ever would want to do that, but I believe that day will not come, especially after today's post).  A quick recap to that post, I gave myself 4 choices, an ETF, a REIT, a SGX stock and a US stock.  Let's review their performances to date since then, and see how having a one-ETF/ REIT/ stock impacts one's portfolio, compared to a diversified portfolio.

VOO ETF

Over the past month, VOO ETF has declined by 9.35%.  In absolute perspective, an investment portfolio of SGD 400K will be left with SGD 362.6K.  Although VOO is an ETF, by itself it should be diversified.  However, it has geographical risk, as it measures the performance of the top 500 companies in the US.  As the high inflation and rising interest rates are directly impacting US technology companies, the short term outlook will still be under pressure.

Parkway Life REIT

Over the past month, Parkway Life REIT has plummeted by 14.02%.  In absolute perspective, an investment portfolio of SGD 400K will be left with SGD 343.9K.  Although it is a solid healthcare REIT, the plummeting Japanese Yen against Singapore dollar and the never-ending rising treasury yields are a double whammy to the performance of Parkway Life REIT.  Despite having hedged against the JPY, and has substantial amount of debt under fixed rate, there will come a day when all these expires and the renewal of debt may inevitable be done at a much higher rate in future.  The short term impact persists, and any turnaround will require the FED to pause hiking rates.

Singapore Technologies Engineering

Over the past month, ST Engineering has declined by 8.36%.  In absolute perspective, an investment portfolio of SGD 400K will be left with SGD 366.6K.  It has been the most resilient among the 4, as half of its income is derived from defense, which is not going to be affected by market conditions.  However, as it has relatively high debt, whether its dividend payout can be maintained needs to be closely monitored.

Microsoft

Over the past month, Microsoft has declined by 9.95%.  In absolute perspective, an investment portfolio of SGD 400K will be left with SGD 360.2K.  Being a US technology giant, it has been impacted by the rising interest rates, which affected its future growth estimates.  However, with stable recurring income due to its business model, I believe any downward pressure is likely short term and it will be great to buy the dip via DCA. 

During the same period, my current portfolio declined by approximately 5.50% over the same period.  My portfolio consist of REITs, banks, technology shares and VOO ETF in SGX and US markets.  This simple comparison shows that having a diversified portfolio will likely cushion the impact in a falling market, which, despite being red, makes me able to sleep comfortably at night.  Definitely, a short term comparison of only 1 month is not an accurate measure, especially if you are a long term investor.  Nonetheless, I believe in the importance of diversification.  As the old saying goes, "Never put all your eggs in one basket".  

In the first couple trading days in October 2022, we see the slight recovery in the markets.  However, a popular retail stock, Tesla, did not manage to follow the crowd to push higher into the green, but instead plunging by 8% because Tesla missed its Q3 delivery numbers.  This further reinforces the importance of diversification to me.  Looking forward to better days in the last quarter of 2022, hopefully.  Barista FIRE, here I come...!