22 August 2011
Why and How to do long term investment in STI ETF using Dollar Cost Averaging Method?
I have been acumulating both SPDR STI ETF (monthly) and DBS STI ETF (daily) for long term (20 to 30 years) investment after long term and careful calculations and considerations. I think this is the only way for small timers like me to make solid and consistent profit in the cruel and vicious stock market in the long term.
Based on my calculations, STI consistently returned 7 to 8% compounded annual growth rate (CAGR) to long term investors in the past 31.4 years.
Breakdown of return is
about 5% capital appreciation (CAGR basis),
> 2% annual dividend,
plus cost savings of about 0.65% if Dollar Cost Averaging (DCA) method is used.
Now I added one more dimension to DCA method in addition to those three fators mentioned above called DCA+ which means amount per month is not fixed, rather, it fluctuates with STI rolling PE (at 12 currently as at 22 Aug 2011). 12 is my base for calculating amount of money to be invested in each month. When STI rolling PE is at 12, I invest S$8333 per month, so to say; at 15, 6667; at 14, 7143; at 13, 7692; at 11, 9091; at 10, 10000; at 9, 11111; at 8, 12500; at 7, 14286; at 6, 16667; at 5, 20000; at 4, 25000; at 3, 33333; at 2, 50000; at 1, 100000. You may have seen that I'll invest more per month if STI rolling PE drops, less if STI rolling PE rises. but I'm only willing to invest when STI rolling PE is below 15.
Based on historic record, the lowest PE is 6.
I believe it can further improve rate of return by factoring in this approach when using DCA method.
Based on my calculations, STI consistently returned 7 to 8% compounded annual growth rate (CAGR) to long term investors in the past 31.4 years.
Breakdown of return is
about 5% capital appreciation (CAGR basis),
> 2% annual dividend,
plus cost savings of about 0.65% if Dollar Cost Averaging (DCA) method is used.
Now I added one more dimension to DCA method in addition to those three fators mentioned above called DCA+ which means amount per month is not fixed, rather, it fluctuates with STI rolling PE (at 12 currently as at 22 Aug 2011). 12 is my base for calculating amount of money to be invested in each month. When STI rolling PE is at 12, I invest S$8333 per month, so to say; at 15, 6667; at 14, 7143; at 13, 7692; at 11, 9091; at 10, 10000; at 9, 11111; at 8, 12500; at 7, 14286; at 6, 16667; at 5, 20000; at 4, 25000; at 3, 33333; at 2, 50000; at 1, 100000. You may have seen that I'll invest more per month if STI rolling PE drops, less if STI rolling PE rises. but I'm only willing to invest when STI rolling PE is below 15.
Based on historic record, the lowest PE is 6.
I believe it can further improve rate of return by factoring in this approach when using DCA method.
Labels: STI ETF, Stock Trading System, Thoughts
