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What do we understand when we talk about “Self Funding” in Dividend Capture Strategy in Regular Investment Plan?

A regular investment plan requires investor to fund the investment on a regular basis. The frequency of funding varies from monthly, quarterly, half yearly to yearly. There is typically a prefixed number of years of premium payment which an investor need to commit to, else penalties may apply.

Self Funding is therefore defined as using a smaller amount of fund than specified in the plan to generate income to fund the investment itself, increasing investment account value and increasing income perpetually. Turning the investment into a “Automated Money Making Machine”, “Automated Money Printer” or some call it “Perpetual Profit Centre”.

Example: A 10-Year Regular Investment-linked Plan requires an investor to minimally fund 10 years of premium of the plan. However, using Scheduled Dividend Capture Strategy (SDCS), investor only need to fund it for the first 3 years, thereafter the plan will generate sufficient passive income (dividend) to fund it perpetually. Thus, progressively increases its dividend (passive income) and its cash value (investment account value) over time.

Theoretically, so long as your investment can generate a yearly income of 20%, in 3 years time, you will be able to self fund the regular plan perpetually. Assuming that the the account value stays stagnant. See below.

Table 1: 3-years Self Funding based on 20% yearly income.

The above table is based on the assumption that the account value stays stagnant. However, in real life, fund prices fluctuates everyday so long as the market is opened, thus the account values do not stay stagnant, especially when we are deploying Scheduled Dividend Capture Strategy (SDCS-S2 or SDCS-S3). They typically trend down in each intra-year but trend up over medium to long term, year on year. See below.

Do note that all the table or the charts below are based on a annual premium $100,000 investment linked plan.

Chart 1: Cash Value Line Chart

Based on the Bar Chart of the cash value, it’s increasing Year-On-Year,

Chart 2: Yearly Cash Value Bar Chart

With an increasing cash value, we expect an increasing dividend of the investment, since dividend is issued at % of the Cash Value or the NAV. Let take a look if it is still possible possible to Self Fund in 3 years when the investment cash value fluctuates. Let take a look at the dividend and see if it’s still able to achieve 20% payout.

Chart 3: Actual Dividend Payout Vs 20% Dividend Payout Projection

Since the red line (Actual Accumulated Dividend) is always above the green line (20% Dividend Payout Projection), this shows that the investment actual dividend payout rate is above is always above 20% since 2019. The dividend has always been increasing year on year just like the Cash Value. Look at the Bar Chart below, The dividend has been increasing year on year. Do note that the Bar for Year 2024 is not a complete year yet.

Chart 4: Yearly Dividend Bar Chart

Table 2: Actual Dividend Collected to Self Fund with an initial amount of $300,000

(A) is my bank savings account which I deposited the initial $300,000; (B) is the dedicated bank savings account set up for collecting the dividend from my DCS Investment; (C) is the premium I paid to the financial institution I invest with.

The dividend is updated as of 16 Sep 2024. There’s another 3 months of dividend to 16 Dec 2024 not factored in yet. From just the current amount of dividend collected of $114,717.67, we can see that Self-Funding of my investment is already achieved.

With the above Bar Charts, Line Graph and tables, we can conclude that Self fund is possible even when there’s a typical intra-year down trend and a medium to long term up trend of cash value , based on the first 5 years data collected.

Disclaimer:

Do note the above is for educational and sharing purposes only. They are not meant to be investment advice. For any investment or financial planning advice, please approach your financial planner or investment specialist.

My DCS Journey began with my first meeting with my financial planner on this topic of creating passive income in the month of November 2019. It is also during the meeting when my financial planner shared about Dividend Capture Strategy, DCS. There’s a few important points that I retained till today

20% Annual Dividend Payout Rate, ADPR

Self-Funding my 10-years regular investment plan in 3-4 years

Increasing Dividend Payout (Passive income)

Increasing Investment Account Value (Cash Value / Capital)

Increasing Insurance Coverage

In December 2024, I made up mind to invest and embark on my DCS Journey on 16 Dec 2019. Since then, I never look back. Let me share with you more.

On November 2019, I was exploring using a regular investment plan to grow my passive income and at the same time manage my growing insurance needs in difference phases of my life. After some discussion with my financial planner, I decided on a regular investment linked plan.

Table 1: Self Funding Illustration

I have set aside $300,000 as an initial budget and target to self-fund a 10 years regular investment-linked plan after 3 years, based on a 20% Annual Dividend Payout Rate. (My annual premium is $100,000.) However, I reserved some extra funds for standby purposes, in case of unforeseen market turbulence.

On 16 December 2024, my regular investment linked plan is incepted. Like most of the regular investment linked plan, they come with some bonus investment units. After some discussion, my financial planner and I decided to take those extra units as a buffer for market fluctuations and not to include those them for our projection. Perhaps, I was just being my usual cautious self.

Below are my actual results in Oct 2024… …

Chart 1: Actual Accumulated Dividend vs 20% Projected Dividend

20% Annual Dividend Payout Rate, ADPR

In the above chart, the red line represents the actual accumulated dividend collected and the green line represents the 20% accumulated dividend projection. As you can see the 20% projected accumulated dividend as of 16 Sep 2024 is clearly outperformed by my actual accumulated dividend collected. The projection of 20% of the accumulated dividend is supposed to be $283,333.33 but the actual dividend collected was $314,717.67 which is 11.07% above projection.

((314,717.67 – 283,333.33)/ 283,333.33) x 100% = 11.07%

Table 2: Actual Dividend Collected to Self Fund with an initial amount of $300,000

(A) is my bank savings account which I deposited the initial $300,000; (B) is the dedicated bank savings account set up for collecting the dividend from my DCS Investment; (C) is the premium I paid to the financial institution I invest with.

The dividend is updated as of 16 Sep 2024. There’s another 3 months of dividend to 16 Dec 2024 not factored in yet. From just the current amount of dividend collected of $114,717.67, we can see that Self-Funding of my investment is already achieved.

Chart 2: My increasing Dividend since Dec 2019

I collected $39,188.31 in the first 12 months. In the next 12 months, I received $50,545.97. On the subsequent 12 months, I collected another $69,365.95 and by the 48th month, I have another $82,406.57. As of 16 Sep 2024, I have already collected $73210.87. With another 2 more months of dividend to be collected, breaking the previous year (Yr 2023) dividend is definitely on track. Therefore, for the past 5 years, increasing dividend is as well achieved in my investment.

Chart 3: Monthly Dividend from Dec 2023 to Sep 2024

For the past 5 years, I have always been looking for to the monthly dividend. Typically 2-3 payments per month.

Chart 4: Increasing Cash Value of my investment in the past 5 years

Chart 5: Cash Value with premium (Yellow Box) paid for Year 6

Increasing Cash Value is noticed in my investment year on year. The overall cash value in the my regular investment linked plan, excluding dividend collected is on an uptrend based on Chart 3.

Based on the bar chart of the Cash value in Chart 5, we can also see an increasing Cash value year on year since Dec 2019. The premium to be paid in Dec 2024 is already currently in My Local Bank Savings Account 2 ($114,717.67) in Table 2. Once the payment of premium, the cash value will be $361,160.92

Table 3: Increasing Insurance Coverage

While growing my passive income for my retirement and legacy planning, I am also increasing my insurance coverage, thus increasing protection for my love ones as part of my estate plan. In the past 5 years, I used $300,000 to self fund a 10 years regular investment linked plan to build an increasing capital, increasing passive income and increasing insurance coverage. Now, I have an insurance coverage of $505,000 in event of death.

Chart 6: Projected Dividend in 20 years

The above is charted based on the actual dividend collected in the first 4 years of my investment. This is basically for illustration sharing purposes only.

That’s all for my DCS Journey. I hope that you find my sharing above useful. I wish you all the best and success in your DCS investment journey.

Disclaimer:

Do note the above is for educational and sharing purposes only. They are not meant to be investment advice. For any investment or financial planning advice, please approach your financial planner or investment specialist.

Recently, a study is conducted on 10 years projected IRR, Internal Rate of Return for both SDCS-S2 and SDCS-S3.

Let’s see among the 2 scheduled dividend capture strategies, SDCS-S2 and SDCS-S3, which strategy gives a better IRR, Internal Rate of Return?

Note: The following measurements are based on the Year 1 to Year 4 of actual dividend and Year 5 to Year 10 of projected dividend. The projected cash values of $562,500 were added to the Year 10. Please see below.

First 4 years of actual dividends received from SDCS-S2

First 4 years of actual dividends received from SDCS-S3

The following 2 tables of calculations of IRR, Internal Rate of Return are based on $100,000 invested on yearly basis and the accumulated dividends in each year are only made available in the beginning on the following year. Expenses represent the premium paid and the income represent dividend received.

Internal Rate of Return of SDCS-S2

Internal Rate of Return of SDCS-S3

Based on the above 2 table of calculations of the IRR for SDCS-S2 and SDCS-S3, SDCS-S3 has a higher IRR than SDCS-S2. IRR of SDCS-S3 is 12.97% and that of SDCS-S2 is 12..19%. Therefore, SDCS-S3 is better than SDCS-S2 in the terms of IRR.

Some investors have a different opinion about the above IRR Calculations and the data used. They felt that the dividend starts accumulating and available from the first month and not at the beginning of the following year. Therefore, they felt that the tables of data should look like the following revised ones instead.

Internal Rate of Return of SDCS-S2 (Revised)

Internal Rate of Return of SDCS-S3 (Revised)

As you can see from the above examples, the availability of dividends make a big difference in the calculations of the IRR, Internal Rate of Return.

For the SDCS-S2, it’s a 8.06% difference in the IRR. Whereas, it’s a difference of 8.84% in IRR for the SDCS-S3.

For information of Projected Cash Value and projected dividend, see below.

Projected Cash Value

The above is only a 24-years projection of the cash value and not the actual cash value. We do not ensure its accuracy and it’s solely for the purpose of projected IRR calculation only.

Actual and Projected Dividends

Let’s refer to the previous post of the $100,000 annual premium regular investment-linked plan portfolio. The bar chart below is extracted from the previous post.

Based on the projection, with an estimated amount of $185,000 we can potentially fully self fund a $100,000 annual regular investment plan. From Year 6 onwards, a potential $7000 excess dividend after funding $100,000 of the regular investment linked plan. Then , by the 10th year, we potentially has excess $66,000 annual dividend on top of the $100,000 premium payment. Eventually, potentially $230,000 annual dividend on top of the $100,000 premium payment at the year 20.

In this particular case study, based on projection above, the investor will be able to potentially create a passive income of $7,000 at the end of Year 6, $66,000 at the end of Year 10 and $150,000 at the end of Year 15 and $230,000 at the end of Year 20.

When deploying DCS via a regular premium investment-linked policies of annual premium $100,000, investor will also potentially create an insurance coverage of $600,000 sum insured at the end of Year 6, $1,000,000 sum insured at the end of Year 10, $1,500,000 sum insured at the end of Year 15 and $2,000,000 at the end of Year 20.

Creation of growing cash flow and growing insurance coverage with as little as $185,000

For investors deploying DCS via an investment linked plan, beside building up their passive income for retirement and legacy plan, they can also achieve their estate plan concurrently.

Disclaimer: Do note that the above is just for personal sharing for brief reference and education purposes only. It is not meant to be an investment or financial advice. For financial advice, please seek help from your financial planner or financial consultant.

In our recent data collected from an existing portfolio using DCS-S3 strategy for the past 4-5 years, we noticed a growing dividend year on year. The portfolio consist regular premium ($100,000 per annum) investment linked plans investing into carefully selected investment funds. Let’s take a look at the past 4 years data and the projection.

From the above, we can see that the investor who invested $100,000 per annum $35,227.47 in the first 12 months. In the next 12 months, he received $47,757.86. On the subsequent 12 months, he collected another $62,181.80. By the 48th month, he has gotten another $77,444.90.

At the first glance, it seems that investor has invested $400,000. But after deducting the amount he received as dividend, his net investment is only $64,772.53 in Year 1, $52,424.14 in Year 2, $37,818.20 in Year 3, $22,555.10 in Year 4. Total net amount invested is only $177,574.97, instead of the initial impression of $400,000 investment over 4 years.

As you can see from the above data, $32,810.95 of dividend already collected from the first 4 months. Let’s take a look at the projection of the dividend payout from Year 5 and beyond.

Based on above chart, the investment is potentially fully self funding from the Year 6 with about $8,000 top up (based on projected dividend of $92,000) on Year 5. From Year 6 onwards using only $185,574.97 ( $177,574.97 + $8000) approximately to fund a $100,000 annual premium of a regular premium investment plan.

In our previous article, we mentioned about Passive DCS. Technically, when deploying a Passive DCS, it’s relatively simple. If we are deploying it via a regular Investment plan, we just need to allocate it to a carefully selected fund which possess the necessary Passive DCS Quality (PDQ). Thereafter, we just have to fund the plan on a regular basis. Example Monthly, Quarterly or Annually.

Although volatility is expected as part and parcel of almost all unit trust investment due to price fluctuation of the underlying fund, it is observed that account value and dividend maintained relatively stable and gradually growing when we reinvest the dividend paid out.

Based on a small regular investment plan using Passive DCS Deployment, the results are as follows.

Below is the price fluctuation of the PDQ Fund A from Sep 2023 to Mar 2024.

There are different categories of Dividend Capture Strategies. They are mainly as follows.

Passive DCS

For Passive DCS, the potential Annual Dividend Payout Rate (ADPR) is around 4% – 8% for a regular investment or investment-linked plan. This is the easiest to deploy among all the strategies. You only need to select a suitable portfolio of dividend paying funds according to your expected dividend payout rate, your investment time horizon and your investor risk profile.

Monitored DCS

For Monitored DCS, the potential Annual Dividend Payout Rate (ADPR) is around 8% to 12 – 14% for a regular investment or investment-linked plan. This is the most complex DCS Deployment among all the dividend capture strategies. As the name suggests, this strategy requires monitoring of the fund prices on top of those of Passive DCS in terms of expected dividend payout rate, investment time horizon and investor risk profile.

Scheduled DCS

Under Scheduled DCS, there are 2 other sub-categories, namely DCS-S2 and DCS-S3. This category also has the highest potential Annual Dividend Payout Rate (ADPR) is around 20% to 28% – 32% for a regular investment or investment-linked plan. The potential ADPR for DCS-S2 is around 20%-24% and 24% – 32% for the DCS-S3. The schedule DCS is also the most systematic approaches among all the Dividend Capture Strategies.

This deployment requires careful selection of suitable platforms, detailed planning of the DCS Schedules, continuous monitoring and analysis of the funds, in terms of dividend payout rate and dividend capturing executions, activities and etc. Occasional intervention during deployments expected.

Although the Scheduled DCS appears to require a lot of detailed plannings, selections to executions and monitoring, it can be made easy to execute with a professional DCS Deployment Support Service Providers. This provider typically utilised AI to help them achieve the above support services to their clients.

With a professional DCS Deployment Support Service Provider, your DCS-S2 and DCS-S3 deployment effort can be as easily achieved in less than 15mins per month.

Yes… there’s no typo error above. All you need is a hassle free 15mins per month to deploy DCS-S2 or DCS-S3 with a professional DCS Deployment Support Service Provider.

Therefore, it’s critical for both corporate and individual investors to engage a professional DCS Deployment Support Service Provider when deploying Scheduled DCS (DCS-S2 or DCS-S3) to ensure the success of your Scheduled DCS deployment.

Please look out for the coming article for the criteria checklist for a professional DCS Deployment Support Service Provider. You can screen your service provider with the criteria checklist.

We have researched into many successful examples of individuals deploying DCS – Dividend Capture Strategy. However, let’s take a look at one deployed by a company instead.

This company is formed by 3 individuals. They decided to invest a total of about $400,000 over a period of 3 years and “self-fund” their regular investment plan over a period of 10 years.

As a company, they are looking at high liquidity, moveable and transferable assets and easy & low operation.

High Liquidity of Investment Plan

The above graph reflects both 20% projected dividend (Green) and actual dividend received (Red) from 27 Nov 2019 till 08 Jun 2023. The company received $316,252.23 instead of the projected $259,333.32. This graph reflected the high liquidity of the the investment via Dividend Capture Strategy for the the company.

From Nov 2019 till Jun 2023, there wasn’t a SINGLE DAY when the account value (Investment Cash Value + Cash Equivalent) fall below the invested capital of $400,000. During this period of time, the economy underwent the precedented Covid 19 Pandemic and the Russian-Ukraine War.

Increasing Insurance Coverage for Shareholders

With no additional invested capital, all the shareholders are enjoying an increasing insurance coverage through the investment via the regular investment linked plans bought by the company. Therefore through this arrangement, all the shareholders will get back more than capital invested in event of death or terminal illness.

The above shareholders only invested $310,000, $60,000 and $30,000 respectively. Their insurance coverages are expected to grow at the above rate till Year 10 based on their current investment plan.

Financial Reports from 2021 – 2023

In the last 3 company financial reports, they showed the increasing assets, increasing revenue and increasing gross profit of the company.

Moveable and Transferable Feature of the Investment

Both the investment portfolio and the insurance feature of the regular investment plan can be easily transferred from the company to any individual. It can likewise be transferred from any individual to another individual. This investment is highly transferable.

Easy and Low Operation Cost

Currently this company do not have any overhead except registered office address (virtual office) cost, book-keeping and ACRA and IRAS annual reporting & registration cost. Last but not least a nominal ($10) monthly banking charges.

3 Years of Continuous Outperformance in 20% Dividend Payout Projection from Jan 2020 to Feb 2023 during time of financial crisis from Covid Pandemic to Russian-Ukraine War.

Outperformance of Dividend Payout above 20% has been a common sight for many of the investor deploying Scheduled Dividend Capture Strategy – 3S DCS.

Scheduled Dividend Capture Strategy – 3S DCS

3S DCS basically are strategy that scheduled switches to capture approximately 3 dividend payouts a month. The switching activities are pre-scheduled. Selection of funds varies from one investor to another based on different criteria.

• Funds with highest dividend payout
• Funds with monthly dividend payout
• Funds with lowest fluctuations
• Funds with lower risk
• Funds investing in a particular sectors/ countries/ regions and etc.

Below are one of the portfolios based on Scheduled Dividend Capture Strategy – 3S DCS

In the chart, the red line represent the actual accumulated dividend collected by this investor and the green line represent the 20% accumulated dividend projection. This particular portfolio started in Nov 2019 and increases over the years. As you can see the 20% projected accumulated dividend ending Feb 2023 is clearly outperformed by the actual accumulated dividend collected by the investor. The projection of 20% of the accumulated dividend was $743,333 but the actual dividend collected was $1,077,766.49 which is 44.99% above projection.

((1,077,766.49 – 743,333)/ 743,333) x 100% = 44.99%

This particular investor is very concern about the “Self-Funding of his Investment Plan in 3 years” His plan is to invest regularly for 10years, generating a dividend of 20% or above to self-fund his regular investment plan.

Let’s take a look at what he meant by “Self-Funding of his Investment Plan”.

For easy understanding, we used a round figure of $100,000 per annum to narrate this particular client’s definition of Self-Funding of his Investment Plan.

He is planning to invest an amount of $100,000 (Premium) per annum for a period of 10 years. Market goes up and down. Therefore, price fluctuations of the underlying investment funds are inevitable over the period of 10 years. However, for the ease of illustration and planning purposes, this client decided to level the fund price fluctuation by assuming the fund price staying flat throughout the 10years.

For Year 1, client will invest fresh fund of $100,000 (premium) at the beginning of the the Year 1. Based on $100,000 portfolio, 20% dividend rate, client will expect to receive $20,000 at the end of Year 1. Therefore, the balance will be $20,000 at the end of Year 1.

For Year 2, client will invest fresh fund of another $100,000 (premium) at the beginning of the the Year 2. Based on $200,000 portfolio, 20% dividend rate, client will expect to receive $40,000 at the end of Year 2. Therefore, the balance will be $60,000 at the end of Year 2.

For Year 3, client will invest fresh fund of another $100,000 (premium) at the beginning of the the Year 3. Based on $300,000 portfolio, 20% dividend rate, client will expect to receive $60,000 at the end of Year 3. Therefore, the balance will be $120,000 at the end of Year 3.

For Year 4, client will invest another $100,000 (premium) at the beginning of the the Year 4 with the accumulated dividend collected (Balance of $120,000) over the last 3 years. Based on $400,000 portfolio, 20% dividend rate, client will expect to receive $80,000 at the end of Year 4. Therefore, the balance will be $100,000 at the end of Year 4.

For Year 5, client will invest another $100,000 (premium) at the beginning of the the Year 5 with the accumulated dividend collected (Balance of $100,000) over the last 4 years. Based on $500,000 portfolio, 20% dividend rate, client will expect to receive $100,000 at the end of Year 5. Therefore, the balance will be $100,000 at the end of Year 5.

For Year 6, client will invest another $100,000 (premium) at the beginning of the the Year 6 with the accumulated dividend collected (Balance of $100,000) over the last 5 years. Based on $600,000 portfolio, 20% dividend rate, client will expect to receive $120,000 at the end of Year 6. Therefore, the balance will be $120,000 at the end of Year 6.

For Year 7, client will invest another $100,000 (premium) at the beginning of the the Year 7 with the accumulated dividend collected (Balance of $120,000) over the last 6 years. Based on $700,000 portfolio, 20% dividend rate, client will expect to receive $140,000 at the end of Year 7. Therefore, the balance will be $160,000 at the end of Year 7.

For Year 8, client will invest another $100,000 (premium) at the beginning of the the Year 8 with the accumulated dividend collected (Balance of $160,000) over the last 7 years. Based on $800,000 portfolio, 20% dividend rate, client will expect to receive $160,000 at the end of Year 8. Therefore, the balance will be $220,000 at the end of Year 8.

For Year 9, client will invest another $100,000 (premium) at the beginning of the the Year 9 with the accumulated dividend collected (Balance of $220,000) over the last 8 years. Based on $900,000 portfolio, 20% dividend rate, client will expect to receive $180,000 at the end of Year 9. Therefore, the balance will be $300,000 at the end of Year 9.

For Year 10, client will invest another $100,000 (premium) at the beginning of the the Year 10 with the accumulated dividend collected (Balance of $220,000) over the last 9 years. Based on $1,000,000 portfolio, 20% dividend rate, client will expect to receive $200,000 at the end of Year 10. Therefore, the balance will be $500,000 at the end of Year 10.

The above describe and clearly illustrate client’s concept of “self-funding his investment plan” in 3 years for a 10 years regular investment plan.

Fund Prices fluctuate with the financial market

Due the financial turbulences (Covid Pandemic and Russian-Ukraine War)from Year 2019 till Year 2023, fund prices fluctuated down like any other investments across the globe. Look at the Chart 2 below.

For the same period of time, the investment cash value fall from $2,600,000.00 to $2,166,010.56. A decline of $433,989.44 in cash value; a drop of 16.69%.

(433,989.44/ 2,600,000) x 100% = 16.69%

However, out of $2,600,000 of invested capital, $1,077,766.49 is dividend re-invested. Therefore, the actual fresh fund capital is only $1,522,233.51. Based on the above figures and the cash value of $2,166,010.56 as of 15 Feb 2023, the gain from Year 2019 to Year 2023 is $643,777.05 and percent gain of 42.29%

(($2,166,010.56 – $1,522,233.51)/ $1,522,233.51) x 100% = 42.29%

In Conclusion… …

Despite the decline in investment cash value, the dividend collected by this client continues to outperform the 20% dividend payout projection based on the Chart 1.

Based on the Chart 1, it’s a clear indication of achievable and sustainable 20% dividend payout based on 3S DCS. Thus, self-funding investment plan after 3 years of premium payment is as well highly viable with the diverging Actual-Projected Accumulated Dividend lines based on the data collected from the above client’s investment based on Dividend Capture Strategy – 3S DCS.

Lastly… …

Despite challenging market situations from Year 2019 to Year 2023, the above mentioned client still gain $643,777.05 and make percentage gain of 42.29%

Disclaimer: Do take note that past results do not equal to future performances. The above information is solely for educational and research study purposes only. It’s neither meant to be an investment nor financial advice. For investment or financial advice, please seek help from your professional financial advisors.