I have mentioned that I have been putting aside $400 every month into STI ETF, through POEMS Sharebuilder plan.
I started the investment about 2-3 years ago and only contributed $200 per month. It was only about mid-2009 that I increased the contribution to $400.
We all know that due to the US Sub-prime crisis, the market took a beating and plunged. My STI ETF sank too. But I held on to the Sharebuilder plan, believing that dollar cost averaging will work better for me in a down market. Dollar cost averaging (DCA) is to use a fixed sum of money to buy a particular shares on a regular basis, instead of a lump sum investment. The strategy works like how Singaporeans go for shopping. When there is a sale, Singaporeans will buy in bulk the items that are on discount. Likewise, with $400 each month, I buy more when the stock price falls, and buy less when the stock becomes more expensive. Overtime, I get a big discount for the shares I buy.
You may say that I could have profited more if I have bought near the low of STI but I must say I did not know when the market will bottom and never will I in the future. What I must emphasized is that ordinary folks who do not know how to time the market, can invest in this way and gain very decent profits. Since it is so simple and relatively safer than many other strategies or asset classes, it is highly recommended for people who do not have the interest to follow the market but like to profit from equities.
Let’s talk about real life results: As of Dec 09 holdings, I have 3077 shares of STI ETF and a DCA price of $2.5448 for each share. STI ETF closed at $2.99 today. This would translate to a positive gain of $1369.63.
You may feel that the gain is small. But I want to stress that I have a gain despite buying near the peak and went through the entire market crash in 2007-08. How many people have their investment in the positive territory now? And I did not time the market. It was robotic, the bank just GIRO my contribution to the plan without me doing anything. Anyone can do it! If this is the worst time, my STI ETF will even perform better in better times.
If you are not convinced, do check out the annual reports released by Streettracks. For your convenience, I took the performance table from the latest 09 annual report:
I feel that it is quite impressive if you compare to many other managed funds or unit trusts. And the management fee is only 0.3% per annum.
If you ask me if DBS STI ETF is better, I would say both are the same. But I would prefer StreetTracks because it has higher liquidity than DBS. Liquidity is important when you want to sell your shares.
If you are interested, you can visit POEMS website and look for the sharebuilder plan. Please note that I am not inviting you to invest although I own the shares. I am just sharing how this investment product is doing well for me. If you are unsure, please consult your financial adviser before investing in the ETF.
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{ 11 comments… read them below or add one }
Hi Alvin, thanks for sharing your results for the shareholder plan. Can you let me know if STI ETF provide dividend? If so how much?
STI ETF will pay out dividends twice a year. Once in Jan and once in June. The last dividend given was on 20 January 2009, where the Fund declared an interim dividend distribution of S$0.05 per unit. The fees for the fund (0.3%) is deducted from the dividends. The declared dividend amount has taken the deduction into consideration.
Hello Alvin,
if you started increased (by 100%!!) your investment starting second half of 2009, this is not “dollar averaging”.
In fact you started increasing your investment after the market starting picking up.
I do not criticize your strategy, I just want to emphasize that you had to choose a time when you thought the market would not go down further.
Dollar averaging should an automatic method: the same amount is invested every month regardless of the market that month.
Charles, pls understand that I did not purposefully increase my monthly investment when the market picked up. I increase because my finances allow me to and I intend to stay at the same amount until I can further increase my monthly contribution. I did not even know if the market was turning up and I wasn’t predicting it as well.
If I know when the market will bottom, do you think I will be doing dollar cost averaging? I will make more money by plunging as much money as I possibly have into it. It seems like you are speaking with hindsight bias.
I don’t see the problem of earning more money, using dollar cost average or pseudo cost averaging or not.
If one can combine DCA with TA, all the better isn’t it?
Yeah La papillion, as long as profits roll in, who cares what method?
Hi Alvin, do apologise for this newbie question:
If a $100/mth investor is charged $6.42 as handling fee, wouldn’t the cost (or brokerage or whatever to call it) be 6.42% (6.42/100) p.a.? Looks pretty hefty!
Or did I get my sums and understanding wrong?
Thanks.
W
W, you are absolutely right!
6.42% is too high as an expense. Trying to keep it around 1% will mean that you have to put in $600/mth.
Thanks for the response, Alvin!
As much as I really want to put money into STI ETF, $600 is beyond my current budget. May have to look for cheap UTs …
W
Hi Alvin,
The yield of the STI ETF is only 2% based on current price. Is it still worthwhile investing in the sti etf ?
Thanks
P
I don look at yield when investing stocks. I look for capital gains. If you are looking for dividends or cashflow, you need to have a sizeable capital to get a decent returns constantly.