A Deeper View On US Stocks – Safe And Aggressive Stocks

Earlier this week, someone asked us our thoughts on any stocks to recommend. Of course, there are simply way too many available stocks globally to recommend and there isn’t a “one-size-fit-all” stock or portfolio composition.

But we wanted to share some thoughts on how we look at our portfolio composition so that it may be helpful to our readers.

Type 1 US Stocks – Stable Stocks

If you look at most investors who have been investing in US stocks, chances are, you will always find a lot of familiar names, which includes your FAANG (Facebook, Apple, Amazon, Netflix, Google). 9 out of 10 US investors will have at least one of these stocks in their US portfolio.

Other common names include NVIDIA or AMD, which are both in the semiconductor space, Visa or Mastercard, Microsoft, and occasionally your china BAT stocks: Baidu, Alibaba or Tencent.

Similar to how for a Singapore portfolio, you will commonly find banks and REITS (your capitalands and mapletrees) in many Singapore dividend investor’s portfolio. These are the staple compositions of any Singapore investor.

For the US stocks mentioned above, we treat them as the “core stable stocks” of any US equity portfolio. These stocks have high market cap and they have demonstrated years of track record in growing their revenue consistently. As such, they are somewhat predictable in their price movement, and has lower volatility and downside risk.

In the long run, these US stocks are stable and should track the S&P movement, a slow and steady upwards slopping price movement. During the earnings call of these companies, if the results beat estimates, usually these stocks will then breach a new all time high to find new price levels.

For example, earlier this week, Google and PayPal reported a better than expected quarter 4, and both broke through their all time high and is now finding new price levels. If results are mixed, usually these growth stocks will trade sideways – see Amazon and Facebook for example.

Amazon Sideway movement for 6 months
Facebook Sideway movement for 6 months

US Stocks Type 2 – Aggressive Growth Stocks

Other than these stocks, there are also aggressive growth stocks. Unlike the core stable stocks, aggressive growth stocks have higher volatility and are often highly speculated and traded by traders.

Some popular aggressive growth stocks in the past year include Tesla, SE, Fastly, Crowdstrike, Nio, Lemonade, Square, Palantir, and more.

These stocks usually see daily movements of up to 5% both ways, and if you manage to catch the right tailwind for the stock, usually the direction of the trade will be magnified. For example, if you are invested in Crowdstrike, an aggressive high growth stock, any good news or better than expected earning report will send the stock upwards and may reach a daily increase of 10%!

How We Look At Our Portfolio

So the way we structure our portfolio is that, we have a core position of “stable” US stocks as well as a handful of other aggressive growth stocks which we have high conviction on.

These core position of stable stocks give us the piece of mind that our US equity will not “turn to zero” if the world collapse, while we “leverage on aggressive stocks” to invest in future growth areas.

If we were to break down our portfolio (both Mr and Mrs Budget total holding), here’s the composition sorted by % as of today:

StocksType% HoldingSector
SEAAggressive16.83%Ecommerce Gaming
TeslaAggressive9.76%Electric Vehicle
Ark GAggressive / ETF6.56%Genomics ETF
AmazonStable Core6.31%Ecommerce
PayPalStable Core5.96%Payment
GoogleStable Core5.07%Advertising
NvidiaStable Core4.42%Semiconductor
LendleaseSG Dividend4.40%Retail
RazerStable Core3.28%Gaming
CenturionSG Dividend2.83%Accommodation
Hong Kong LandSG Dividend2.48%Real Estate
AlibabaStable Core2.29%Ecommerce
Mapletree IndustrialSG Dividend1.47%Industrial
PowermaticSG Dividend1.00%Electronics
Total # of stocks: 20
# of aggressive stocks: 9
# of stable core stocks: 6
# of SG dividend stocks: 5

If you look at our allocation, you will be able to see that our risk tolerance is on the high side, with high allocation towards aggressive US stocks.

Our top 5 largest equity holdings are on aggressive growth stocks, making 47.36% of our total equity portfolio. This reflects our “investment into the future”.

Our stable core holdings, which we chose to invest into Amazon, PayPal, Google, NVIDIA, Razer, and Alibaba makes up about 28% of our total equity portfolio.

Our top 10 stocks make up about 75% of our total equity portfolio, consisting of mostly aggressive growth stocks and stable core holdings.

The rest of the 25% of our equity portfolio are made up of our legacy Singapore stocks, as well as opportunistic purchases that we made as and when they appear on our radar. For example, Unity is our exposure into the future gaming and AR space, and Mrs Budget picked up Alibaba few weeks ago when their market price became oversold on multiple barrage of bad news.

US Equities Is Not As Scary As It Seem

So actually, even if you are invested in the US equity market, I feel like there are also various types of portfolio composition that you can structure your portfolio into. And of all the US equity market, there are also relatively “stable stocks” that has lower volatility that other stocks – which typically is your FAANG stocks.

For many Singapore investors who may not be investing in US stocks, most often than not, it is because he is worried of the volatility.

However, if you actually look at the US stock market, the core stable stocks is usually quite “safe” and can provide even more return as compared to Singapore stocks. In fact, Ark Invest, one of the most popular exchange traded fund now treats FAANG stocks as “cash like instrument”, speaking volume of how relatively safe these stable stocks are.

So back to the original question that led to this portfolio composition discussion: which stocks on our watchlist will we recommend?

Well it depends on your risk profile: if you have a higher risk, then we’d recommend checking out aggressive growth stocks which have high volatility and potential high rewards (or loss).

If you have a lower risk, you can actually pick any FAANG stocks or buy into an ETF which tracks the nasdaq (QQQ is quite good).

I think another point we wanted to point out is that, actually the US market is not as “scary” as many may think. Compared to the Singapore index, the US market actually offers much higher investing rewards to investors.

US stocks (NASDX)SG Stocks (STIETF)
10 Years Return20.1%1.97%
Bull Market10 – 30% return5-10% return
2020 Return (covid)48.59%-8.47%

In a good market, US market will usually outperform the Singapore market due to its bigger customer and audience base.

In a bear market, both US and SG will suffer some portfolio drawdown. As long as one has a long year time frame (at least 2 years), more often than not, it will be much better to invest in the US market.

In fact, the risk of not investing in US stock market is actually much higher than investing into the US market, because historically, US market has returned 9-10% per annum on average. We previously also wrote an article on this.

We studied the top performing investors on Stocks Cafe and found out that of the 23 investors which made >30% returns in the past 3 years timeframe, 61% of them invested in US stocks. The top 2 performing investor jpf and zhengkang, and Cosmicpubes, had over 85% of their stocks in US holdings.

Data accurate as of 20th May 2020

And a US market portfolio with some aggressive growth stocks will most likely provide a good long term return – but you’d have to live with the volatility. I also often share this to our family member who are investing, that if you cant handle a stock at its worst, then you don’t deserve it at its best. 🙂

The same saying goes to other asset classes, including crypto.

Also Read: What We’ve Learnt This COVID19 – Using US Stocks To Boost Overall Portfolio Gain

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