The mainstream media and correspondingly the general public tends to look at stock investments from a one-dimensional standpoint: Capital gains. Nothing is more exciting than the “buy low sell high” mantra being displayed on a price chart with double or triple digit returns on investment. The true value of long-term holdings, however, come from their ability to generate income yields (which reinvested leads to the compounding everyone talks about).
#1: Lend Out Your Stock
A less well-known avenue to obtain yield for your long-term holdings is to sign up to let your shares be loaned out for interest. In SGX’s Securities Borrowing and Lending Programme, you can let your local shares be loaned to borrowers for 4%. What is also great is that if you decide to sell it down the road, there is no counterparty issue as SGX will assign another lender to the borrower. This means your investment is not tied up, giving you the extra potential yield without the drawback of a capital tie-up.
#2: Sell OTM Call Options
This is known as the covered call strategy, less applicable for SGX stocks and more for overseas ones. If you expect current prices to be range-bound for the next month, selling call options with strike prices above current prices allows you to generate income yield from your portfolio. If prices do explode higher, you will sell your holdings at the strike price you sold at. If prices come down, the income made from selling the options should cushion the blow a little.
#3: Diversify Into High Dividend Yielding Stocks
This has been talked about to death by investment courses online but is an important point nonetheless. By allocating a part of your portfolio to stocks that yield high stable dividend income, you create an income stream while diversifying away from your other investments. Without going into too many specifics – dividend investing at opportune times provides price cushions and allows you to reap significant long-term returns even if the stock goes nowhere.
Bonds and Fixed Income