13 July 2011

Demo of PPM - Part 4 (Current Asset to Total Portfolio Ratio)

Following from my previous posts (Demo of Personal Portfolio Management - Introduction, Part 1, Part 2 and Part 3), I have illustrated all my opinions on personal portfolio management, that make my life easier. I am able to choose what life I would like to be, and in the mean time, to pursue my dream of becoming a long term investor cum money manager in near future.

In this post, I would like to share with you on the Current Asset to Total Portfolio Ratio and what its impact to your short term and long term risk. As all you have known in my previous post,
what I am currently looking at is to strive a balance in my Non Current Assets and Current Assets. Just to refresh, the Non Current Asset consists of the assets can give you long term benefits, such as real estate, rental income, dividend, and any other sort of passive income that allow you to survive in long run. Current Assets, in another words, are the assets that can be generated/caused by Current Debts (current debts here could be the margin interest / mortgage loan & interest payment etc) such as the rental income, dividend, blog income, business income other than your active income.

My ultimate goal is to enable my passive income (which is from Current Assets) that can cover my current liabilities (e.g. Living Expenses, Traveling Expenses, Insurance, 12 months coming mortgage loan payment, 12 months coming car loan payment and any other coming obligation that have to fulfill within 12 month etc).

Hence, my passive income are from two sources - Non Current Asset - Real Estate (rental income / Capital Gain) and from Current Asset - Financial Products (e.g. Stock Dividend, Unit Trust Bonus, Capital Gain). As what I told you earlier, the only business that do not require you to pay the tax is the Capital Gain from the investment (No capital gain tax to be payable in Singapore and Malaysia), the more capital gain that we can get from both Real Estate and Stock market allows us to generate more current income/assets to cover our current liabilities. Once we have enough cash flow to cover for current liabilities, we should have enough cash flow to invest in Non Current Assets. Please see the illustration below:

Call out A: Movement from Non Current Assets to Non Current Liabilities to Current Liabilities to Current Assets and to Non Current Assets again.
To make your positive cash flows as much as possible, there are two factors, time & investment growing speed that you can read it from my post 'Time * Investment Growing Speed = Investment Return'.

Basically I would like to get a Current Asset to Total Portfolio Ratio at 50%. It means that I would have 50% assets in Real Estate and 50% assets in Stock/Shares Market. It allows me to live comfortably in both long run and short run. I could go traveling whenever and wherever I would like to go without any hassle.

Hope this post can help you to make your own decision making on how to manage your own personal portfolio.


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