04 Sep Simple and Effective Automatic Investing with Index ETFs
Investing in the stock market doesn’t have to be difficult or complicated. If you’re just dipping your toes into investing, or thinking about starting, chances are you’ve probably tried reading up and doing research. The problem is, the sheer volume of investing advice out there is mind-boggling, and sometimes, even downright contradictory. Hence the reason why many people end up procrastinating and not investing, even though they know they should.
What should you do? Well, there’s a simple solution that takes the path of least resistance. The golden rule (or hidden secret, if you will) of investing is KISS (Keep It Simple and Sound/Smart/Savvy). Most of us don’t have the time, energy or the expertise to keep monitoring and tweaking our investment portfolio. Especially if you’re not an experienced/savvy investor, one of the worst things you can do is to go around stock-picking. In fact according to CPFIS report,
40% of the CPFIS investors lose money!
and only 15.0% managed to make profits more than the CPF rate of 2.5%.
The secret sauce of investing isn’t in picking individual stocks or correctly timing trades. Instead, it’s about diversifying investments across different types of assets and minimising the drag of fees on performance in the long run. This means…passive investing in low-cost index tracking ETFs. Index tracking ETFs basically follows the largest companies in the world, such as the 500 US companies (S&P 500) and even the top 30 companies in Singapore (Straits Times Index).
Why we prefer investing via ETFs:
– Most actively managed funds do not beat the market. In fact, for the past 10 years, only 1 out of the 8 Singapore unit trusts managed to beat the STI ETF!
SG Equity Fund vs STI ETF 10 Years to 2015
Aberdeen Singapore Equity Fund: 8.3%
STI ETF: 8.1%
Schroder Singapore Trust: 8.0%
Amundi Spore Dividend Growth: 7.7%
Deutsche Singapore Equity: 7.7%
Nikko AM HIF Spore Div Equity: 7.2%
LionGlobal Singapore Trust:6.2%
Nikko AM Shenton Thrift: 6.0%
United Singapore Growth: 5.9%
– Actively managed funds charge high fees
Active funds generally charge between 1.5% to 2.0%+ annually, while passive funds can charge as low as 0.05%.
– Most investors want a simple, straightforward solution that complements their daily lives