How to Build a 6-Figure Investment Portfolio (Part 1)
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Nineteen dollars and forty cents.
That was the very first amount we set aside for charity back in 2014.
There was no champagne popping although we congratulated ourselves with some eggs and toast at Ya Kun Kaya Toast.
It was a start.
Fast forward to today, including capital gains, dividends and more cash injections, this amount is now on its way to becoming a six-figure stock portfolio. Yup, starting from just $19.40âŠ
In this article and the next, I just wanted to share with you the process of getting there, so you know that you are not alone on this journey and that youâre on the right track.
“I have $10,000 to invest right now⊠what stocks should I look to buy?”
Now some of you may be sitting on cash and eager to deploy what you have on hand.
Itâs totally understandable because youâve seen how investing can work. You want to get feet wet and start making some money.
But hereâs the thing⊠investing only works if you do it the right way.
Your rate of activity doesnât determine your overall returns.
But the kind of businesses you invest in and their valuations do.
“It wasnât hyperactivity, but a hell of a lot of patience.” â Charlie Munger
Weâll take our dividend portfolio as an example:
When we started The Fifth Person, we created a charity portfolio that focuses on dividend stocks and REITs.
The portfolio and the dividends it generates are set aside for charity.
(If you’re curious to know more, here are more details of our charitable efforts.)
If you notice in the portfolio above, it doesnât have a lot of activity â we only averaged about four purchases per year.
Some years we bought more, some years we bought less, depending on market conditions and stock valuations.
And if there are no opportunities in the market, we wait.
It is more prudent to wait for the right opportunity and invest only when your potential to profit is at its highest.
So what do you do while waiting?
You build up your capital.
The Value of Capital
The value of your portfolio can increase in three ways:
- Capital gains
- Dividends
- Capital injections
The one thatâs most overlooked is capital injections.
Because the more money you save and inject into your portfolio, the more you can obviously make on your investments. For example:
A 50% gain on a $10,000 portfolio = $5,000
But just a 10% gain on a $250,000 portfolio = $25,000
And just a 5% gain on a million-dollar portfolio = $50,000
When you have built up a large amount of capital, thatâs where the magic really starts to happen.
I call it the âTipping Pointâ.
Ask yourself â which is far easier to achieve?
- Finding companies that can grow 5-10 times in size OR
- Finding companies that give you a 5-10% return annually
If you invest $10,000 in a stock that returns five times your money, thatâs an amazing result! But being able to consistently unearth a stock like that is extremely rare.
On the other hand, simply investing a million dollars in a safe dividend portfolio that yields 5% p.a. will net you the same return in absolute dollars in one year.
The rich keep getting richer and itâs true.
The one difference: capital.
Because at the end of the day, wealth is still being measured by absolute dollars.
Good Things Come To Those Who WaitâŠ
Donât be too eager to jump into the market just because you have a fear of missing out. Instead, find the right companies at the right valuations.
And when the opportunity finally presents itself, donât hold back to deploy the capital youâve been saving for all this while.
âThe stock market is a no-called-strike game. You donât have to swing at everything â you can wait for your pitch.â â Warren Buffett
I know it sounds like common sense, but itâs not very common among retail investors who jump at every âinsiderâ tip or hot stock they see.
Remember, itâs OK to hold onto your cash if there are no opportunities in the market. Thereâs no rush to invest.
And while waiting, simply build up more capital.
Because while itâs amazing owning a stock that can return 5-10 times your investment, itâs even better if you had a lot more capital to invest in it!
This article first appeared on The Fifth Person and is part of a content syndication agreement between The Fifth Person and Seedly.
For our Stocks Investing and Stocks Analysis articles, the Seedly team worked closely with The Fifth Person, who is an expert in the field to curate unbiased, non-sponsored content to add value back to our readers.
The Fifth Person believes in spreading a message â that sound investment knowledge, financial literacy and intelligent money habits can help millions of people around the world achieve financial security, freedom, and lead better lives for themselves and their loved ones.
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