The 10% Stock Picking Rule

Once again, this post was inspired by my readers who are looking for something more than Index Investing. One day, what if you can't help yourself and have an incredible urge to deviate from Index Investing? We are only humans, after all. Does this spell total disaster? Don't worry, you'll do just fine.

In the Millionaire Teacher's last chapter, Andrew Hallam recommends that if you really cannot refrain from picking individual stocks, do not commit more than 10% of your portfolio for stock picking. This is one rule that I agree with, and stick to religiously.

Like I have mentioned previously, this blog is about a personal story. A real story. My story. I won't kid you and declare that I don't pick individual stocks. I like to keep my finance journey fun. Who says growing my wealth cannot go hand-in-hand with having some fun?

The next question is, what stocks am I holding on to, besides STI ETFs?

Apple Inc. (AAPL) <USD>

No. of Shares : 1

Buy Price : $434.04
Prev Close : $489.56
Intention : Short / Mid Term

CapitaMall Trust (C38U) <SGD> 
No. of Shares : 1,000

Buy Price : $1.85
Prev Close : $1.98

Intention : Long Term

Both are very interesting companies which appeal me for a variety of reasons.

Trivial Question of the Day

Q : What does Apple and Capitamall Trust have in common?

A : Both pay quarterly dividends.

PS -
It was only a little more than a month ago that the STI almost dived under 3,000 points, halting at 3,004 points. Looks like it is sitting tight at 3,147 points today. Life goes on.

Tax Withholding in the United States

I had previously read about Tax Withholding in the United States, but I haven't really had the chance to experience it until recently.

If you are unaware, three key types of withholding tax are imposed at various levels in the United States:

• Wage withholding taxes,
• Withholding tax on payments to foreign persons, and
• Backup withholding on dividends and interest.

We are interested in specifically withholding tax on payments to foreign persons. Based on Wikipedia, you can see that ".. payments subject to withholding include compensation for services, interest, dividends, rents, royalties, annuities, and certain other payments. Tax is withheld at 30% of the gross amount of the payment."

What does this mean to you, the investor?
Simple. Dividends is taxed at 30%.

Anyway, just to relate my experience, I picked up a single unit of AAPL some time ago via Standard Chartered Online Trading. (and the exchange rate sucked, by the way)

Whaaaaaat? Now, just hang on a minute, isn't this an index investing blog? Well, yes, it is. My "investment" fund is solely devoted to index investing. 

However, my "hobby" fund is meant for whatever I want to use it for. Some people collect stamps, some people collect toys ; I collect stocks. You are not encouraged to this. At all.

Okay, now that I've addressed this, let's head back to Tax Withholding in the United States. I picked up AAPL not because of it's dividends, but because of this I was able to see how it worked.

On April 23, 2013, Apple's Board of Directors approved a 15% increase in the Company’s quarterly dividend and has declared a cash dividend of $3.05 per share of the Company's common stock. The dividend is payable on May 16, 2013, to shareholders of record as of the close of business on May 13, 2013.

On the 20th, the dividend was promptly credited into my Standard Chartered account. 

As you can see, the dividend is indeed USD $3.05 as stated in Apple's website. Notice there is another record stating US Withholding Tax of USD $0.92. Well, guess $3.05 * 30% = $0.915.

If you're following the advice of Millionaire Teacher Andrew Hallam and investing into a world stock ETF such as Vanguard Total World Stock ETF (which gives quarterly dividends), now you know why your dividends are shrinking! Of course, this applies to any dividends paying stock in the US, such Microsoft, Walmart and Intel. Noobie investors, take note!