The Covid-19 throws a spanner on increasing Portfolio to $1.3M quickly from 1.2M as in we need to be careful in our investment injection by $100k which is part of Warchest. So why this amount ?
Here's the link because of the compounding effect @1.3M per my lifestyle. (contingent to yield 5.3% able to maintain @ 1% growth). However if the stock price keeps increasing but business fundamental weaken or not enough improvement, the yield will be lowered. To compensate it, higher cash inject will be needed or expenses reset as we age. Hope I don't lose you by now !
Let me explain again using Reit term. if the stock price increase by 1% (Growth), and we have corresponding reduction in yield say -1% (DPU in cents maintain), it kind of neutralize the compounding effect. This is not good as we lose that year of compounding. So DPU has to increase accordingly to maintain the yield. If is not which could be, and to bring the portfolio backup, we need to increase our investment through injection or we spend less to support the injection. Get it ?
Of-course we can increase our yield by investing in riskier asset to maintain it but this is not sustainable long term and will mean Portfolio keeps getting RISKIER over time .... . And that is Dangerous which some people may make, like me on what I feel right now ? LOL
Therefore, come to think of it, is not so easy as the calculation is a simplified model. To mitigate it therefore using above example, if 1% growth of 1.3M that is equal to $13k has to come out of Real growth. When there is no DPU growth, we need to inject in this amount of $13k or spend less to support it roughly.
This is why advocating dividend re-investing is important or injection from saving if you have a job as changing stock aren't easy for same quality. But the key is capital gain has it's price to fulfill for dividend investing.
Something new today.
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