26 September 2014
The Best Way To Buy Stocks If You Fear A Market Crash - Dollar-Cost Averaging
By Andy Kiersz
Investing in the stock market can be extremely frustrating for those who look back on the big rally they missed and nerve-wracking for those who believe the may be putting money into the market at the top.
The S&P 500 has roared almost 200% from its March 9, 2009 low close of 676 to its high of 2,011 on September 18.
With today's big market selloff, some are worrying that we've seen the market peak. This obviously would make investors extremely hesitant to buy stocks for fear of a big decline or perhaps a crash.
However, obsessing over this risk could lead to analysis paralysis because you can never know with certainty if the market will indeed crash. And those who constantly stay out of the market for fear of losing money will miss out on some of the best opportunities to buy.
Fortunately, there is a very basic investing strategy that can save investors from losing too much hair as they make the decision to buy stocks. It's called dollar-cost averaging.
There's A Correct Way To Buy Stocks As The Market Is Crashing
The stock market is great for investors who have the benefit of long-term investing horizons. It's also better-suited for investors who aren't concerned about perfectly-timing market tops and bottoms.
Having said that, taking a longer term view is good for investors worried that they may be buying at the top of the market.
A classic strategy called dollar-cost averaging can help reduce risks surrounding an asset falling in price. The concept is straightforward - you invest a fixed amount of money in an asset once every fixed time period. If the asset's price drops, you will be getting more shares of the asset for the same amount of money, and so if and when the price recovers, you will have spent less per share, on average, than if you had bought the shares at their peak, pre-fall price.
Dollar-cost averaging isn't about losing money as the stock market falls. It's about buying increasing amounts of shares at cheaper prices, which means bigger returns during the rally.
How Dollar-Cost Averaging Worked Brilliantly During The Last Crash
To see this in action, we came up with a simplified thought experiment.
We considered what would have happened to an investor jumping into the stock market at the last peak: October 2007. This was arguably the worst time to buy. Our hypothetical investor puts $50 into a S&P 500 index fund at the start of every month, starting in October 2007 — the last stock market peak before the beginning of the great recession.
The index dropped more or less steadily until the worst moments of the financial crisis in fall 2008, causing the full on crash, and only began to turn around in March 2009.
The key to our investor's experiment is that they are staying consistent. No matter how stock prices move, they will always put $50 every month into the index fund.
Based on changes in the value of the S&P 500 index, we calculated our investor's price return, less the $50 monthly cost:
The value of our investor's portfolio as of September 1, 2014 is $6,563.97. If they instead had taken their $50 each month and held it as cash, they would have just $4,200. So, the price return on this investment — even though they started at the last peak, just before the market started to go downhill — is $2,363.97.
This is a respectable 56% return. That averages out to about a 6.5% annual rate of return.
To get another perspective on this, here is the percent gain or loss, compared to taking $50 each month and holding it as cash:
Things start out looking pretty dire, as the economy fell into its deep recession through mid-2009, with the S&P 500 reaching a minimum in March of that year. At the lowest point for our investor, at the start of February 2009, she would be down about 36%.
Because human beings are often overly risk-averse, our hypothetical investor might have been tempted to abandon their investment plans during the bad months. That is, they might look at this chart and panic about the drop:
But, if our investor sticks with their plan and keeps putting $50 in every month, even through the dark times, once the market bounces back, they end up doing quite well:
Here's Why You Never Hear About This
Unfortunately, dollar-cost averaging isn't sexy. It's much sexier to sell at the top and buy at the bottom.
Obviously, your returns would be much higher if you win the stock market lottery by perfectly timing the tops and bottoms of the market. However, almost everyone who tries to do this will find themselves losing money and lots of it.
If you are investing for the long haul, and can hang on through watching your portfolio's value drop temporarily in bad times, starting to invest in stocks, even near a peak, may not be as terrifying as it looks. The market has always bounced back sooner or later, so if you can hold on until that later, don't panic.
Investing in the stock market can be extremely frustrating for those who look back on the big rally they missed and nerve-wracking for those who believe the may be putting money into the market at the top.
The S&P 500 has roared almost 200% from its March 9, 2009 low close of 676 to its high of 2,011 on September 18.
With today's big market selloff, some are worrying that we've seen the market peak. This obviously would make investors extremely hesitant to buy stocks for fear of a big decline or perhaps a crash.
However, obsessing over this risk could lead to analysis paralysis because you can never know with certainty if the market will indeed crash. And those who constantly stay out of the market for fear of losing money will miss out on some of the best opportunities to buy.
Fortunately, there is a very basic investing strategy that can save investors from losing too much hair as they make the decision to buy stocks. It's called dollar-cost averaging.
There's A Correct Way To Buy Stocks As The Market Is Crashing
The stock market is great for investors who have the benefit of long-term investing horizons. It's also better-suited for investors who aren't concerned about perfectly-timing market tops and bottoms.
Having said that, taking a longer term view is good for investors worried that they may be buying at the top of the market.
A classic strategy called dollar-cost averaging can help reduce risks surrounding an asset falling in price. The concept is straightforward - you invest a fixed amount of money in an asset once every fixed time period. If the asset's price drops, you will be getting more shares of the asset for the same amount of money, and so if and when the price recovers, you will have spent less per share, on average, than if you had bought the shares at their peak, pre-fall price.
Dollar-cost averaging isn't about losing money as the stock market falls. It's about buying increasing amounts of shares at cheaper prices, which means bigger returns during the rally.
How Dollar-Cost Averaging Worked Brilliantly During The Last Crash
To see this in action, we came up with a simplified thought experiment.
We considered what would have happened to an investor jumping into the stock market at the last peak: October 2007. This was arguably the worst time to buy. Our hypothetical investor puts $50 into a S&P 500 index fund at the start of every month, starting in October 2007 — the last stock market peak before the beginning of the great recession.
The index dropped more or less steadily until the worst moments of the financial crisis in fall 2008, causing the full on crash, and only began to turn around in March 2009.
The key to our investor's experiment is that they are staying consistent. No matter how stock prices move, they will always put $50 every month into the index fund.
Based on changes in the value of the S&P 500 index, we calculated our investor's price return, less the $50 monthly cost:
The value of our investor's portfolio as of September 1, 2014 is $6,563.97. If they instead had taken their $50 each month and held it as cash, they would have just $4,200. So, the price return on this investment — even though they started at the last peak, just before the market started to go downhill — is $2,363.97.
This is a respectable 56% return. That averages out to about a 6.5% annual rate of return.
To get another perspective on this, here is the percent gain or loss, compared to taking $50 each month and holding it as cash:
Things start out looking pretty dire, as the economy fell into its deep recession through mid-2009, with the S&P 500 reaching a minimum in March of that year. At the lowest point for our investor, at the start of February 2009, she would be down about 36%.
Because human beings are often overly risk-averse, our hypothetical investor might have been tempted to abandon their investment plans during the bad months. That is, they might look at this chart and panic about the drop:
But, if our investor sticks with their plan and keeps putting $50 in every month, even through the dark times, once the market bounces back, they end up doing quite well:
Here's Why You Never Hear About This
Unfortunately, dollar-cost averaging isn't sexy. It's much sexier to sell at the top and buy at the bottom.
Obviously, your returns would be much higher if you win the stock market lottery by perfectly timing the tops and bottoms of the market. However, almost everyone who tries to do this will find themselves losing money and lots of it.
If you are investing for the long haul, and can hang on through watching your portfolio's value drop temporarily in bad times, starting to invest in stocks, even near a peak, may not be as terrifying as it looks. The market has always bounced back sooner or later, so if you can hold on until that later, don't panic.
Labels: Dollar Cost Averaging
07 January 2014
Are Exchange Traded Funds (ETF) Right For You?
I have been dollar cost averaging STI ETF (ES3) monthly since 18 May 2011 and put in $160k up to end 2013 with 53455 ES3 units being purchased. Current market value was $172659 with dividend being reinvested, up 7.91%. During the same period from 18 May 2011 to 30 Dec 2013, STI INDEX rose from 3141.21 to 3167.43, up merely 0.83%! ES3 rose from 3.21 to 3.21. ES3 average cost (DCA COST) is 3.09, which means that $6414 is saved due to DCA effect:(3.21-3.09)×53455=6414, while $6245 is net dividend received: (172659-160000)-6414=6245. Net dividend contributes nearly half in ES3's market valuation gain!!! Conclusion - Dollar cost averaging stock index ETF is a better choice for small timers like me, which took me one and half years to reach this conclusion before implementing my current 30-year long term investment plan starting from 18 May 2011.
Labels: Dollar Cost Averaging, ETF, Live Trading Records, STI ETF
20 March 2013
Awaiting long-term investment opportunities in stock index funds and luxurious condominium, which can only appear during financial crises or economic recessions.
Labels: Dollar Cost Averaging, ETF, PE Ratio, plan, STI ETF, Thoughts, Warren Buffett
26 June 2012
Bought 100 units of Nikko Am STI ETF at 2.86 today.
Labels: Dollar Cost Averaging, ETF, Live Trading Records, STI ETF
04 June 2012
Main US ETF's
Finalized main US ETF's planned buy levels (retracing 50, 60, 70, 80, 90% from 2007 high) and placed alerts at 50% in the trading platform today. Main Solid US ETFs - SPY QQQ EEM IWM EFA EWZ XLE XLF DIA FXI GDX VWO IVV MDY XLU XLK IWF VTI IWB IWD IJR IVW VGK IWR IJH VEU VEA VOO GLD SLV
Labels: Dollar Cost Averaging, ETF, plan, Thoughts
25 October 2011
向巴菲特学习投资指数基金 (Warren Buffett on Investment of Stock Index ETF )
Source: http://school.stockstar.com/SS2009093030238310.shtml
“我会把所有的钱都投资到一个低成本的跟踪标准普尔500指数的指数基金(VOO, SPY)”- 巴菲特 (Warren Buffett)
问：指数基金是被动管理，为什么它的长期收益率可能好于主动管理的股票基金呢？
答：被称为“股神”的巴菲特从不荐股，也从不预测市场走势，但是许多投资者都知道巴菲特唯一推荐过的投资品种就是指数基金。在15年间巴菲特屡次推荐指数基金的评论中，如果仔细研究，不难看出投资大师在投资指数基金时的独特视野。
首先，指数基金适于长期投资。在2008年5月3日伯克希尔股东大会上，名为Tim Ferriss的投资者问：“假设你只有三十来岁，没有什么经济来源，只能靠一份全日制工作谋生，但是你已经有笔储蓄，足够维持一年半的生活开支，那么你攒的第一个100万将会如何投资?”巴菲特回答：“我会把所有的钱都投资到一个低成本的跟踪标准普尔500指数的指数基金，除非我是在大牛市期间购买，否则我有信心获得强于市场的收益……然后继续努力工作。”巴菲特看到提问者的年龄大约是30岁，所以给他投资指数的建议。投资如果从30岁算起，到60岁左右退休，大约是30年。美国标准普尔500指数在1979年到2009年30年间，年均增长率将近8%。
另外，巴菲特认为大牛市的顶部买指数基金，风险是非常大的。但如果目前市场处于底部或者中部，投资风险得到释放，那么在市场恢复过程中，指数基金的表现是足够好的。今年上半年A股反弹时期，指数基金的表现无疑印证了这一观点。
第二，低费率的指数基金值得投资。在2003年巴菲特致股东的信中写道：“那些收费非常低廉的指数基金在产品设计上是非常适合投资者的。”巴菲特认为，对于大多数想要投资股票的人来说，收费很低的指数基金是最理想的选择。一般主动式管理基金的管理费为1.5%，托管费为0.25%；而国内指数基金的管理费率介于0.5%~1.3%之间，托管费率则在0.1%~0.25%之间，其中ETF和指数LOF的费率水平更低。加上LOF的便捷交易模式，投资成本更低。
第三点，定投指数基金是更好的投资方法。在2007年5月7日CNBC电视采访巴菲特时，他表示，个人投资者的最佳选择就是买入一只低成本的指数基金，并在一段时间里持续定期买入。如果你坚持长期持续定期买入指数基金，你可能不会买在最低点，但你同样也不会买在最高点。从长期来看，指数基金的收益率并不会输给主动型基金。
从国内数据来看，定投指数基金也明显胜出。海富通中证100指数基金拟任基金经理牟永宁表示，从历史数据来看，长期投资指数基金，在指数震荡上升的前提下，许多指数基金的收益要高于主动型基金。原因很简单，指数基金不做择时，在建仓完毕后一般执行的是“买入并持有”的投资策略，换手率远低于主动管理型基金。粗略统计，主动管理型基金每年的交易费率、佣金等运营成本比指数基金高2%。“尽管看起来2%微乎其微，但如果长期投资的话，累积起来的收益也相当可观。”
“我会把所有的钱都投资到一个低成本的跟踪标准普尔500指数的指数基金(VOO, SPY)”- 巴菲特 (Warren Buffett)
问：指数基金是被动管理，为什么它的长期收益率可能好于主动管理的股票基金呢？
答：被称为“股神”的巴菲特从不荐股，也从不预测市场走势，但是许多投资者都知道巴菲特唯一推荐过的投资品种就是指数基金。在15年间巴菲特屡次推荐指数基金的评论中，如果仔细研究，不难看出投资大师在投资指数基金时的独特视野。
首先，指数基金适于长期投资。在2008年5月3日伯克希尔股东大会上，名为Tim Ferriss的投资者问：“假设你只有三十来岁，没有什么经济来源，只能靠一份全日制工作谋生，但是你已经有笔储蓄，足够维持一年半的生活开支，那么你攒的第一个100万将会如何投资?”巴菲特回答：“我会把所有的钱都投资到一个低成本的跟踪标准普尔500指数的指数基金，除非我是在大牛市期间购买，否则我有信心获得强于市场的收益……然后继续努力工作。”巴菲特看到提问者的年龄大约是30岁，所以给他投资指数的建议。投资如果从30岁算起，到60岁左右退休，大约是30年。美国标准普尔500指数在1979年到2009年30年间，年均增长率将近8%。
另外，巴菲特认为大牛市的顶部买指数基金，风险是非常大的。但如果目前市场处于底部或者中部，投资风险得到释放，那么在市场恢复过程中，指数基金的表现是足够好的。今年上半年A股反弹时期，指数基金的表现无疑印证了这一观点。
第二，低费率的指数基金值得投资。在2003年巴菲特致股东的信中写道：“那些收费非常低廉的指数基金在产品设计上是非常适合投资者的。”巴菲特认为，对于大多数想要投资股票的人来说，收费很低的指数基金是最理想的选择。一般主动式管理基金的管理费为1.5%，托管费为0.25%；而国内指数基金的管理费率介于0.5%~1.3%之间，托管费率则在0.1%~0.25%之间，其中ETF和指数LOF的费率水平更低。加上LOF的便捷交易模式，投资成本更低。
第三点，定投指数基金是更好的投资方法。在2007年5月7日CNBC电视采访巴菲特时，他表示，个人投资者的最佳选择就是买入一只低成本的指数基金，并在一段时间里持续定期买入。如果你坚持长期持续定期买入指数基金，你可能不会买在最低点，但你同样也不会买在最高点。从长期来看，指数基金的收益率并不会输给主动型基金。
从国内数据来看，定投指数基金也明显胜出。海富通中证100指数基金拟任基金经理牟永宁表示，从历史数据来看，长期投资指数基金，在指数震荡上升的前提下，许多指数基金的收益要高于主动型基金。原因很简单，指数基金不做择时，在建仓完毕后一般执行的是“买入并持有”的投资策略，换手率远低于主动管理型基金。粗略统计，主动管理型基金每年的交易费率、佣金等运营成本比指数基金高2%。“尽管看起来2%微乎其微，但如果长期投资的话，累积起来的收益也相当可观。”
Labels: Dollar Cost Averaging, ETF, STI ETF, Warren Buffett
20 October 2011
My Financial Plan
(Updated on 26 Aug 2013)
1.0 Assets
1.1 Bank Savings
Time depositsSavings accounts
1.2 Mini Cash Fund for Children
Monthly Transfer (to convert to Nikko STI ETF 100 when it drops by 50% or more from historical high, best for kids - 26 Aug 2013)1.3 Salary Income
1.4 Property
2.0 Insurance
NTUC I-Term Life Insurance (Self, wife)
Company Group Term Life Insurance Underwritten by HSBC (Self)
Company Group Critical Illness Insurance Underwritten by HSBC (Rider to Company Group Term Life Insurance)(Self)
Company Group Personal Accident Insurance Underwritten by AXA(Self)
CPF Medishield Life (Self, wife, children)
Company Group Hospital and Surgical Insurance Underwritten by Tokio Marine Life(Self)
Company Group Outpatient Insurance for GP / Specialist Underwritten by Tokio Marine Life(Self)
Company Group Business Travel Insurance Underwritten by AXA(Self)
CPF Home Protection Scheme (HPS) (Self, wife)
CPF Dependants' Protection Schedme (DPS) (Wife)
Home Fire Insurance Underwritten by AIA (changed to ETIQA Insurance Berhad, 1 North Bridge Road #08-01 High Street Centre Singapore 179094 from 20 Apr 2012, Tel 6331 9253, 6331 9254) (Self, wife)
3.0 Debt & Expenditures
Property Mortgage
Family Food
Water & Power Bills
Community Town Council Charges
Telephone & Broadband
Tuition
Fund for Parents
School Fees
Painting Course for Children
Piano Course for Children
School Meals
Travel & Entertainment
Shareinvestor Subscription
Poems ProTrader Subscription
4.0 Investment Plan
4.1 Long Term Investment Plan
4.1.1 CPF
CPF Ordinary Account (to convert investable portion to Nikko STI ETF 100 when it drops by 50% or more from historical high - 26 Aug 2013)
CPF Special Account (to convert investable portion to Nikko STI ETF 100 when it drops by 50% or more from historical high - 26 Aug 2013)
CPF MediSave
4.1.2 A Small Pension Fund with Mercer in Australia
to convert to EWA or stock index ETF traded in Australia stock market when the ETF drops by 50% or more from historical high - 26 Aug 20134.1.3 Monthly Dollar Cost Averaging (DCA) on STI ETF 1000 (Committed, ongoing, with Phillip Securities Pte Ltd)
Buy S$5,000 worth of STI ETF units through Phillip Share Builders Plan(SBP) by Phillip Securities on 18th day of every month irrespective of price. Started in May 2011 and ongoing, investment period - 30 years or more
Objective - To achieve 7 to 8% compounded annual growth rate (CAGR) consistently
Note - units bought can be transferred to margin account, if necessary, to increase purchasing power up to 3 times of net assets.
(To expand with supporting documents)
4.1.4 Long Term Stock Index ETF Investment (With Standard Chartered Bank Singapore)
STI ETF 1000 (with SCB, to continue to buy whenever the market looks bleak or pessimistic)
Nikko AM STI ETF 100 (with SCB, to continue to buy whenever the market looks bleak or pessimistic) (Nikko AM STI ETF 100 is the former DBS STI ETF 100. DBS Asset Management was acquired by Nikko Asset Management. Nikko AM is majority-owned by The Sumitomo Trust and Banking Co., Ltd., while DBS Bank Ltd is the second largest shareholder, controlling 7% plus. Employees also own a stake in the company.)
4.1.5 Dollar Cost Averaging (DCA) At Price Correction Levels of 50, 60, 70, 80, 90, 95% From Historic High (Plan, to implement)
Use margin account (why? - shares bought can be used as collateral for further DCA and short term trading as mentioned below in case cash is depleted during DCA at various correction levels).
Five excellent opportunities were created for long term investors like Warren Buffet to accumulate blue chip index funds (if available) and blue chips from the past 7 serious corrections in Singapore stock market in the past 32 years (I only have so many data) that we could take advantage of by using the method mentioned above.
STI achieved more than 100% profit each time in 4 out of these 5 excellent opportunities after corrections; While STI achieved 91% profit so far after the latest correction due to US financial crisis in 2008. STI achieved a profit as high as 181% (formula: (High after serious correction - DCA Price) / DCA Price = 181%) after a serious correction from high in Jan 1984,
114% after a serious correction from high in Aug 1987,
132% after a serious correction (caused by Asian financial crisis triggered by currency attacks by George Soros, a Hungarian-American Jewish financial speculator) from high in Feb 1996,
203% after a serious correction (caused by bursting of US Internet bubble in 2000 and 911 terrorist attack to World Trade Center in New York by Osama Bin Laden of Al-Qaeda on 11 Sep 2001) from high achieved in Jan 2000,
91% so far after a serious correction (caused by US Sub prime mortgage crisis and collapse of Lehman Brothers) from high achieved in Oct 2007.
In total, STI achieved a CAGR of 11.44% (formula: (2^5)^(1/32)-1 = 11.44%) assuming that we had bought STI 5 times and had achieved 100% profit on average each time in the past 32 years.
In fact, some profit could also be achieved from remaining 2 out of 7 opportunities created by serious corrections in the past 32 years. Although STI failed to drop 50% or more during these 2 corrections, but some large / mid caps could fall 50% or more and thus buying opportunities could still be created.
Some dividend could also be collected in the past 32 years.
Therefore, STI could achieve a better CAGR than 11.44% as projected above, which would be much higher than 7 to 8% compounded annual growth rate (CAGR) that was supposed to produce by means of "Monthly Fixed Amount Dollar Cost Averaging (DCA) on STI ETF".
Guess what will happen if we have another 5 times of serious corrections in the coming 30 years?
Just buy and hold until DCA prices double, our money will become 25.77 times of current amount ((formula: (1+11.44%)^30 = 25.77)! In other words, we will have 25.77 million dollars in 30 years if we have an investment fund of 1 million dollars now!
Targeted market - SGX
Targeted counters - STI ETF, Nikko AM STI ETF, majority of large caps (STI 30 components) and some selected mid caps
Targeted market - US Markets
Targeted counters - Large (>US$5b) and solid (fund buys index components only and diversified with many counters preferably more than 100) ETF's such as SPY MDY QQQ DIA EEM IWM EFA EWZ XLE XLF FXI GDX VWO IVV XLU XLK IWF VTI IWB IWD IJR IVW VGK IWR IJH VEU VEA VOO GLD SLV. Buy levels (retracing 50, 60, 70, 80, 90% from 2007 high) and placed alerts at 50% in the IB trading platform already on 04 Jun 2012.
Investment period - 1 to 3 years
TP - Doubling of DCA price or higher
(To expand with supporting documents)
4.1.6 Buy quality condominium during economic recessions / crises when price drops by 50% or more if fund is available then
Investment period - 1 to 3 years
TP - doubling of purchase price or higher
4.2 Short Term Trading Plan
4.2.1 Trade long using margin A/C
Trading conditions
Trend is up (SMA50 > SMA100 > SMA200 and all must point upwards) and price breaks out of double bottom formation
Targeted Market
SGX, HK, US, KL(if chart is available), UK (if available for trading)
Targeted counters
Large caps and selected SG mid caps
Trading platform
Poems / Poems ProTrader / IB
Order type
Limit / stop / stop limit
SL
Stop loss, to place stop limit order daily if possible
TP
To be determined by trailing stop if possible
Note: A few stocks, COSCO Sinagpore, NOL, Noble Group, Nam Cheong, bought a few years ago are still in the margin trading account with Philip Securities Pte Ltd icluding. Nam Cheong is in paper profit. I believe the other three will recover their paper losses sooner or later in the future. In addition, there is about S$24k invested in the Phillip Securities Managed Cash Fund (MMF).
4.2.2 Trade short using CFD A/C
Trading conditions
Trend is down (SMA50 < SMA100 < SMA200 and all must point downwards) and price breaks out of double top formation
Targeted Market
SGX, HK, US, KL(if chart is available), UK (if available for trading)
Targeted counters
Large caps and selected SG mid caps
Trading platform
Poems CFDTrader / IB
Order type
Limit / stop / stop limit
SL
Stop loss, to place stop limit order daily
TP
To be determined by trailing stop
5.0 FAQ
Why buy CPF Medishield instead of Private Medishield or private health plan?
Former NTUC Income chief TKL explained excellently, to attach what he said.
Why trade HK, US, UK (if possible) and KL markets also?
To have sufficient number of large caps so that more potential opportunities can be identified since the trading conditions set above are very stringent and thus opportunities are rare if no at all. Trading setup with stringent conditions produces high probability rate of success (as high as 80%) (to expand with supporting document).
I met this problem and made no money from 2009 low so far despite I have an excellent trading system because I focus on Singapore market only but opportunities here are rare. When I looked at other markets such as HK and US, there were many opportunities that had met the stringent conditions mentioned above!
Why not trade Forex any more?
Real trading with Poems (lost about S$10,000) and Demo trading with Oanda (Lost about US$12,500 of fake money given by Oanda) in the past few months indicate that forex was not or will not be a cup of tea for me. US$12,500 in total was lost even though my risk per trade is S$100 to 300 only for demo trading!
On the other hand, equities are more stable and more predictable.
I am more comfortable with equities because I know many good opportunities will still be out there in the future.
(Update to be continued...)
6.0 Reference
S&P 500 Price (Inflation Adjusted)
S&P 500 PE Ratio
Risk management
The 3 Secrets of Margin Trading - Position Sizing, Risk Management and How to Track Total Exposure
Position Sizing
Position Sizing: How to Limit Risk & Maximize Gains
STI ETF
4 Reasons to invest in STI ETF
Why and How to do long term investment in STI ETF using Dollar Cost Averaging Method?
Nikko AM STI ETF, Investment Plan
Buy STI ETF Using Dollar Cost Average Method
Trading System
The most profitable and safest trading system in a bull market
New dummy trading system
Reflection on Trend - 08 Nov 07, Thu
TA Essence in my trading system
Historical Teaching
疯狂的代价：世界上最惨烈的几次股市大崩盘
Labels: CFD, Dollar Cost Averaging, ETF, Health, Margin, plan, Position Sizing, Risk Management, STI ETF, Stock Trading System, Thoughts
19 July 2011
Four Reasons to Invest in STI ETF (ES3.SI or G3B.SI)
by Alvin on February 27, 2011
#1 Low cost – management fee and sales charge less than 1% per year
If you understand compound interest and its effect, you would know that your investment capital would exponentially. Likewise, if compound interest can work for you, it can work against you as well. I am talking about fund management fees. They have eroding effects too. It makes a lot of sense to spend as little as possible for fund fees. This is one important criteria when you invest in any funds. STI ETF currently charges about 0.3% management fee, comparing to similar unit trusts which charged between 0.75-1.5%. This means that you have 100-500% of savings right from the start! And this has not factored in the compounding effect. Talking about sales charges, Fundsupermart currently charges 1.25% for the unit trusts and while you buy STI ETF from a broker, POEMS charges 0.18% to 0.28%. If you just buy a lot which cost you $3,000 and the minimum brokerage fee is $25, your percentage cost would be 0.83%, still lower than the unit trust’s sales charge.
#2 Growing Singapore economy
As a Singaporean, I am happy in where I am as I see Asia as an emerging affluent continent. Singapore being a business hub, would likely to flourish with Asia. I have faith in the economy and hence, buying into Singapore companies is one of the best way to participate in the growth of Asia. We have many established companies that have began expanding their influence in Asia and other parts of the world. Giants like Singtel, KepCorp, SembCorp, DBS, UOB, etc, are well managed and financially sound (I am not suggesting these are stocks to buy, they are just example to illustrate my point). As Asia grows, I believe they would gain some market share as well. And right now, they have consistent cash flow as they provide services that Singaporeans pay for everyday. To be able to buy into all these companies would require a large capital. But with STI ETF, you would be able to partly own the top 30 companies in Singapore, the bluest chips of all.
#3 Good Diversification
The STI has a mathematical methodology to identify the top 30 companies in Singapore. There will be periodic review of the constituent stocks and any replacement of the top 30 can be effected. STI ETF would track this index closely, and make adjustments accordingly. As such, you would always buy into the top 30 companies at any one time. You do not rely on any single company for investment growth. And in this 30 companies, they cover many industries and sectors. These are forms of diversification. This is especially important if you do not know how to pick stock.
#4 Buy the index if you cannot beat it
It has been said that most fund managers cannot beat the benchmark index. Is it true? Kay from Moneytalk did a comparison between STI ETF and the similar unit trusts. Taking the dividends from STI ETF into consideration (without factoring the fund costs for all funds), the STI ETF indeed outperformed the fund managers. There is a saying, “if you can’t beat them, join them”! If the fund managers are unable to beat the index, it would be wise to buy something that replicates closely with it – STI ETF.
Conclusion
Comparing to unit trusts, you can buy STI ETF at a cheaper rate and have a potential higher return. To me, it isn’t a difficult choice. Another important thing I want to warn you is that you still have to buy at the right time. Do not expect to buy the STI ETF at the height of a bull market and expect to see profits. Timing is important. I would like to quote Warren Buffett, “be fearful when others are greedy and be greedy only when others are fearful”.
#1 Low cost – management fee and sales charge less than 1% per year
If you understand compound interest and its effect, you would know that your investment capital would exponentially. Likewise, if compound interest can work for you, it can work against you as well. I am talking about fund management fees. They have eroding effects too. It makes a lot of sense to spend as little as possible for fund fees. This is one important criteria when you invest in any funds. STI ETF currently charges about 0.3% management fee, comparing to similar unit trusts which charged between 0.75-1.5%. This means that you have 100-500% of savings right from the start! And this has not factored in the compounding effect. Talking about sales charges, Fundsupermart currently charges 1.25% for the unit trusts and while you buy STI ETF from a broker, POEMS charges 0.18% to 0.28%. If you just buy a lot which cost you $3,000 and the minimum brokerage fee is $25, your percentage cost would be 0.83%, still lower than the unit trust’s sales charge.
#2 Growing Singapore economy
As a Singaporean, I am happy in where I am as I see Asia as an emerging affluent continent. Singapore being a business hub, would likely to flourish with Asia. I have faith in the economy and hence, buying into Singapore companies is one of the best way to participate in the growth of Asia. We have many established companies that have began expanding their influence in Asia and other parts of the world. Giants like Singtel, KepCorp, SembCorp, DBS, UOB, etc, are well managed and financially sound (I am not suggesting these are stocks to buy, they are just example to illustrate my point). As Asia grows, I believe they would gain some market share as well. And right now, they have consistent cash flow as they provide services that Singaporeans pay for everyday. To be able to buy into all these companies would require a large capital. But with STI ETF, you would be able to partly own the top 30 companies in Singapore, the bluest chips of all.
#3 Good Diversification
The STI has a mathematical methodology to identify the top 30 companies in Singapore. There will be periodic review of the constituent stocks and any replacement of the top 30 can be effected. STI ETF would track this index closely, and make adjustments accordingly. As such, you would always buy into the top 30 companies at any one time. You do not rely on any single company for investment growth. And in this 30 companies, they cover many industries and sectors. These are forms of diversification. This is especially important if you do not know how to pick stock.
#4 Buy the index if you cannot beat it
It has been said that most fund managers cannot beat the benchmark index. Is it true? Kay from Moneytalk did a comparison between STI ETF and the similar unit trusts. Taking the dividends from STI ETF into consideration (without factoring the fund costs for all funds), the STI ETF indeed outperformed the fund managers. There is a saying, “if you can’t beat them, join them”! If the fund managers are unable to beat the index, it would be wise to buy something that replicates closely with it – STI ETF.
Conclusion
Comparing to unit trusts, you can buy STI ETF at a cheaper rate and have a potential higher return. To me, it isn’t a difficult choice. Another important thing I want to warn you is that you still have to buy at the right time. Do not expect to buy the STI ETF at the height of a bull market and expect to see profits. Timing is important. I would like to quote Warren Buffett, “be fearful when others are greedy and be greedy only when others are fearful”.
Labels: Dollar Cost Averaging, ETF, STI ETF, Warren Buffett
04 July 2011
Standard Chartered Bank offering stock brokerage service at lowest commission of 0.18% to 0.20% and without imposing minimum commission
I think SCB scheme is excellent for long term investors using dollar cost averaging method - buy STI ETF 1000 or Nikko AM STI ETF 100 - you can buy as low as 100 units (for Nikko AM STI ETF 100) a time to have a highly accurate averaging with no minimum commission. hope it will not change this scheme in the future.
instead of buying once a month, you can further diversify time of buying by dividing into 4 to 5 times a month, say, buy 100 units of Nikko STI ETF 100 every Friday at 4.30pm.
this is an important clue for serious long term investors that are considering using DCA method to reduce risk and achieve a reasonable long term compounded annual growth rate (CAGR) of 5% to 5.6% plus annual dividend of about 2% to 3% plus cost savings of x% due to using DCA (20.3% cost savings for the last 31.4 years from Jan 1980 to May 2011) according to my calculation of STI performance in the last 31.4 years.
long term investment means investing for 10 to 30 years.
instead of buying once a month, you can further diversify time of buying by dividing into 4 to 5 times a month, say, buy 100 units of Nikko STI ETF 100 every Friday at 4.30pm.
this is an important clue for serious long term investors that are considering using DCA method to reduce risk and achieve a reasonable long term compounded annual growth rate (CAGR) of 5% to 5.6% plus annual dividend of about 2% to 3% plus cost savings of x% due to using DCA (20.3% cost savings for the last 31.4 years from Jan 1980 to May 2011) according to my calculation of STI performance in the last 31.4 years.
long term investment means investing for 10 to 30 years.
Labels: Back Test, brokerage, Dollar Cost Averaging, ETF, STI ETF
