The Sunday Times have a good article written by Mr Goh Eng Yeow sharing his examples of how folks like you and me, the millennial, where everything seem to be expensive, can find a low risk way to keep up with inflation.
He shares his example of his early purchase of SBS shares and how you can invest in STI ETF to a similar effect:
When I started working in 1986, I had the good fortune of buying 1,000 Singapore Bus Service shares, which cost $3,000 and gave me a concessionary monthly bus travel pass.
I kept the shares, which have multiplied through various issues and stock splits into 16,040 ComfortDelGro shares and 1,200 SBS Transit shares worth a total of $41,000. That gave me a total return of 1,260 per cent over a 28-year period.
When you are working or talking with friends, you frequently hear bombastic figures like this. 1260% looks a very good return for anyone. One slight problem is that people seldom put these returns in the time context.
That is, annualized, what kind of returns we are looking at.
If you annualized his return over 28 years > (12.6 +1)^ (1/28) –1 = 9.7%
9.7% is a very swell return, given that the examples that we are being quoted with are in the range of 6-7%. Bear in mind we have not factored in dividends.
Annualizing the returns give us a good basis of comparison. How does this measure up to the price appreciation of HDB? What I remember is that for the past 34 years the annualized rate of growth is 7%. SBS/Comfort does look much better than this.
Food prices for the past 34 years probably grew 3% per annum.
What about the STI ETF example:
Similarly, if an investor had put his money in a basket of stocks, tracking the benchmark Straits Times Index (STI), he would come out a winner. The STI has soared by 230 per cent over the past 28 years, from about 1,000 points to 3,300 now.
If you annualized this, (2.3+1)^(1/28) – 1 = 4.3%
You realize that STI ETF’s return isn’t really that spectacular. But also note that dividends was not included in this return computation by the writer. So it can be much higher.
With this compounded average growth rate (CAGR), you can measure this against your fixed deposits, unit trust, ILP and insurance endowment (read here for a small experiment on the endowment returns i gathered) returns.
We leave school and a lot of us return our maths to our teachers. Sometimes, these maths do have their use in real life, it helps you evaluate things better and not be seduced by investments that look really good but in reality the outperformance might not be very drastic.