As 2020 comes to a close, it is time to look back and reflect on all aspects of our lives and look forward to 2021. I think this is a useful exercise to help me to remember and to reinforce what I have learnt throughout this eventful year.

The past year has definitely been memorable, but is also a year most might rather forget. Many lives were lost and livelihoods affected. Our way of life has totally been disrupted. We have all been forced to live, work, and play within the four walls of our home.

There were certainly stressful periods like during circuit breaker when childcare centers and outdoor playgrounds were closed. Having to entertain a toddler for an entire day while juggling work is no joke. Not a situation I’d hope to find myself in again. Adding to that the anxiety over my job with layoffs happening all around.

2020 is a reminder that money can’t buy freedom, that money isn’t everything, and that nature fights back. I’ve spent a considerable time repositioning my investment portfolios this year, which I’ll elaborate on later and in subsequent posts.

The ultimate aim though is to be able to put our investments on semi-autopilot and spend more time on what really matters in life, things we may have taken for granted in the past. As vaccines rollout and as we hopefully return to normalcy, I hope not to get all caught up just running the rat race again.

From an investing perspective, 2020 has been a stress test on our portfolio. In this series of posts, I would like to share how our portfolio has changed over the course of this year in response to the pandemic, and the reasoning behind those changes. Do note that the information I’m sharing is unique to our family situation, and not to be taken as financial advice.

In summary, these are the 5 key ways our portfolio has changed:

  1. Positioning for growth – pivoting from dividend stocks to growth stocks
  2. Increasing passive investments – larger proportion of ETFs
  3. Streamlining portfolio – reducing number of holdings
  4. Reducing localization bias – reducing exposure to Singapore stocks
  5. Improved portfolio tracking

#1 Positioning for Growth

Our portfolio took a big hit when the pandemic struck in March 2020, much in line with the broader market. Since the portfolio was heavily skewed towards dividend-paying and dividend-growth stocks, the portfolio languished while stay-at-home and new economy stocks rebounded quickly. Only recently in November did the portfolio get back into the green, benefitting from the vaccine news.

This made me realize that the portfolio was not properly diversified and was lacking in growth names. In my opinion, there are broadly two categories of businesses on a continuous spectrum – the disruptors and the disrupted. There will always be an ongoing battle between the two.

Potential disruptors though, carry execution risk. The main thing to watch for is whether these younger, faster growing businesses can realise their full potential.

Larger established companies do not come without risk either, which I had previously assumed. They can very quickly be disrupted and become irrelevant. Take for example book stores, music stores and department stores which have closed down because of increased competition from e-commerce players. Singaporeans might recall brands like Borders, HMV, and more recently Robinsons which have gone out of business.

Having a good mix of growth stocks and dividend stocks seems to me a better allocation for our portfolio, since we still have many years ahead of us before retirement. By investing in growth stocks, the long-term goal is for these companies to eventually grow into large corporations bringing in tons of cash flow, a portion of which might eventually be paid out as dividends.

Currently, growth stocks account for about 1/3 of our portfolio from almost non-existent at the start of the year. Note that the definition of growth is my own. Generally, I consider a company to be a growth play if it exhibits rapid growth in revenue, may not be profitable, and pays little or no dividends.

#2 Increasing Passive Investments

Lockdowns have reminded me that money can’t buy us freedom or health. The pandemic has caused us to be confined to our homes, restricted social gatherings even with our closest family members, and threatened to infect even the healthiest of individuals.

This difficult period has taught me to focus less on building wealth for wealth’s sake, but as an enabler to have more time for the things that really matter – family and passion projects like blogging.

Throughout the year, I’ve been re-allocating more capital into passive investments like ETFs which do not demand as much time to research and effort to track.

Our family portfolio on a high level is split into two sub-portfolios – one for ETFs (more passive) and one for individual stocks (more active). Over the past year, I’ve been selling individual stocks and putting the proceeds into ETFs.

#3 Streamlining the Portfolio

Concurrently, I’ve been trying to reduce the number of holdings especially for individual stocks to reduce the time spent on stock research and keeping up with recent developments.

Fortunately, stocks have bounced back quite dramatically after the initial crash in March, so I didn’t have to sell at huge losses. The market crash also helped me to identify the laggards in my portfolio which I have subsequently divested or trimmed at opportune times.

So far, I have not been able to reduce the number of holdings as much as I’d like. As I exited certain stocks, I ended up opening new positions in stocks I thought were compelling growth stories. In 2021, this will continue to be one of my priorities.

#4 Reducing Localization Bias

Singapore’s stock market benchmark index STI was one of the hardest hit markets during the pandemic, and have yet to recover fully. In hindsight, this makes sense since Singapore being a small country-state with a tiny domestic market, is largely reliant on the global economy and free flow of goods and people. With the pandemic restricting this flow, Singapore was bound to suffer disproportionately compared to bigger countries.

Since many of the growth stocks I’ve identified to add into the portfolio were based in the US, I took this opportunity to swap Singapore stocks with US stocks where possible.

However, I feel that there are still many advantages to owning stocks of local companies so I’ve not totally divested them all, just reduced exposure to them.

#5 Improved Portfolio Tracking

With investments in multiple asset classes and geographical markets, so far I don’t have a robust way of tracking portfolio performance over time especially when taking into account the timing of capital injections.

This year, I’ve started recording key parameters of the portfolio daily using macros in Google Sheets since June (inspired by another blogger, I can’t recall which).

So far, this has proven pretty insightful as I can better visualise how our portfolio tracks market benchmarks and how it reacts to certain market catalysts. This is another area I intend to continually improve next year.

Conclusion

2020 will probably become a bittersweet memory. Although our portfolio was hit hard, it has recovered after a massive November. That said, not all positions have fully recovered, and those which have languished have been let go. This rare market crash proved to be an important stress test both on portfolio performance and on our mental resolve to stay invested and to stick to the investment plan.

Hope this sharing resonates with your own experience. Do let me know in the comments what you have learnt about your investments in 2020 and what changes you have or are intending to make to your portfolios in response.