You will be able to build a mix of income holdings that does not depend on one sector or one type of payer.
Picture a year in which Singapore office rents fall, the banks set aside more for bad loans and hotel bookings drop at the same time. It has happened in parts before. Now picture an income portfolio made of the most familiar SGX dividend payers: two banks, an office REIT, a hospitality REIT and a property developer. Every one of them would feel it, and so would the income.
This lesson is about building a mix where one bad year in one place cannot take out most of what you planned to receive.
Lesson 2.4, The STI blue chips: income and concentration, showed that the Singapore market leans heavily towards banks and property, and that a portfolio built from familiar local dividend payers tends to end up as a bet on those two sectors. Lesson 6.5, Map the sub-sectors you hold, showed the same thing within REITs, with a strong tilt towards Singapore property.
Neither tilt is wrong by itself. But if it happens by accident, you are carrying a risk you did not choose. The fix is to set a limit for each sector before you pick holdings, and to check your plan against it.
Start with sectors across the whole income portfolio, funds and fixed income included. Banks, REITs, telecoms, utilities, consumer companies and industrials each respond differently to the economy. Write down a maximum share of your income for each. A common approach is a single limit for any one sector, but you may want a tighter one for banks and property given everything else you own in Singapore.
Then, within REITs, spread across sub-sectors. Module 6 showed that retail, office, industrial, data centre, healthcare and hospitality REITs earn rent in very different ways. A shock to offices or to travel should then reach only one slice of your income. The sub-sector limits you set in lesson 6.5 carry straight into this plan.
You do not have to build the spread one stock at a time. An STI ETF holds all thirty STI constituents in one fund, so one company's problems cannot hit you hard. A REIT ETF holds a basket of REITs, so the same is true for any one REIT. Both are types of holding, and the course Build and run an ETF portfolio covers how to compare funds of each type.
Funds do not remove sector concentration. An STI ETF is still heavy in banks and property, and a REIT ETF is entirely property. So count a fund's sector weights, from its factsheet, towards your limits, the same as single holdings.
Dividends and REIT distributions are not the only sources of income. Bonds, Singapore Government Securities, T-bills and Singapore Savings Bonds pay interest on a fixed timetable. Fixed deposits pay a stated rate. Their income is steadier than dividends, because the payments are set in advance, though they usually do not grow. The course Bonds, T-bills, SSBs and fixed deposits covers how each works and how to choose between them.
Adding a fixed income slice means one bad year for shares does not cut your whole income. It is the most direct way to make income more reliable, at the cost of less growth over time.
Here is a made-up plan for S$12,000 a year of income. Every figure is an example.
Bank stocks, S$3,600, 30%. S-REITs, S$4,800, 40%, split into office S$1,800, retail S$1,500 and industrial S$1,500. Other SGX dividend stocks, S$1,200, 10%. T-bills, SSBs and bonds, S$2,400, 20%.
Say the investor's limits are 25% of income from any one stock sector, and 15% from any one REIT sub-sector. Banks, at 30%, are over the limit and need to come down. The REIT slice, at 40%, is spread across three sub-sectors, with office at exactly 15%, its limit. Retail and industrial are each 12.5%, inside the limit. The 20% from fixed income does not count towards any share sector.
The REIT total is 40%, above the 25% sector limit, but this investor treats each REIT sub-sector as its own sector, which is a choice to write down explicitly. Another investor might also cap REITs as a whole. What matters is that the rule is decided before the holdings, and written.
Wei Ling's own first pie looked much like this example before she moved some of her bank income into fixed income and a non-property sector.
Last, think about country. Most local income holdings depend on Singapore. S-REITs with overseas assets, global funds and foreign bonds add other economies, along with the currency questions lesson 6.4, Overseas properties and currency risk, raised. Decide how much of your income you want to depend on Singapore alone.
In the activity you will draw your own income as a pie by sector and source, and the slices above your limits will be your first changes to make.
Draw a pie chart of your current or planned income by sector and source, and mark any slice above your limit.
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