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Dollar Cost Average into STI ETF right before Great Financial Crisis Revisited

One of the ways that I have shared in the past for folks that lead a busy life, prefer to focus on career, spending more time with family and yet want a way to build wealth in a fundamentally sound manner is to periodically channel money into 1 or 2 low cost exchange traded fund (ETF) to build wealth.

In Singapore, the ETF that tracks the Straits Times Index, which is a basket of Singapore Blue Chip companies like SPH,DBS, OCBC, Keppel Corp, SembCorp Industries are SPDR STI ETF (ES3.SI) or NIKKO STI ETF (G3B.SI). The expense ratio falls within 0.30% for ES3 and 0.40% for G3B. This compare to the 1% expense ratio typically of Unit Trust investing in Singapore.

You can signed up for a brokerage account with Standard Chartered, Kim Eng, POEMS, UOB Kay Hian to get started.

  1. Plan your budget, and identify a monthly amount to channel to this Wealth Fund. It can be as little as $300
  2. Depending on the size of the amount accumulated in your Wealth Fund, purchase the ETF monthly, quarterly, half annually  or yearly
  3. Get on with your life

I also wrote about the POSB Invest Saver, an automatic investment plan started by POSB that allows you to start putting in money every month for as little as $100 per month. I felt the expense ratio can be rather high as much as 1%, but it enables you to prevent some psychological issues that may impeding your success rate.

Its a rather comprehensive read on what you needed to passively invest, so do take a look.

The fear of getting started in Investing only for the market to plunge

2 years ago, at this time, I wrote about a dear friend of mine, who started putting $1000 per month into the STI ETF, right before the 2007 great financial crisis. You can read the review here where it shows him earning a 9.24% total return despite the STI Index not above the previous highs. (Read Oh Shit! I started DCA investing at the top of the bear market)

Since then, the markets have largely moved nowhere. In these 2 years, we have not breach the high of 3857. We barely kissed 3500 on the index.

It is easy to judge this price movement taken from Yahoo Finance and deem this STI ETF to be a poor investment.

Indeed the benchmark many look for this asset to beat is the CPF OA rate of 2.5% if you are investing it in CPF or 0.1% since they are looking for something GUARANTEED and higher than fixed deposit rates.

Well from the price movement you know that we for sure can’t guarantee you not to lose money in the short run. Long run, that’s a different story. I wouldn’t guarantee it as well, but I would say your chances of doing well is much higher.

Your appreciation of volatility

In this 7 years, there have been 3 noticeable, market fall. The magnitudes of fall are 59%, 19% and 12% respectively.  Whenever I mentioned to folks what is a passive way to build wealth, this is something I can think of, but the fear is that they would not appreciate the philosophy of what is necessary to not chicken out in the face of huge volatility like this.

Such fear is understandable and I realize its not something that one can overcome just by telling one self that they would do otherwise. Perhaps you need a combination of a Knowledge on the needs of passive investing, behavioural finance, a System to refrain you from doing the wrong things, and avoiding contagious environment.

The fear of past bad memories bias

What is most interesting is what happen in 2011, during the PIIG crisis, when the STI went down 19% (2). When you have a fall so close to a 60% fall, that memory remains fresh on people’s minds.

To a lot of us, including yours truly, it does look like 19% is the BEGINNING of ANOTHER 2007. Hindsight, it isn’t.

We all fear bad memories of losing a heap of our networth, and when you see that, you tend to not want to live through it again and would sell off.

The vegetable head syndrome

I called this based on the prevalent Chinese say, where you don’t want to be the dumbest guy in the room. Why hold on and see your gains wiped out when your smart friends are collecting them at the 2009 like lows?

So they sell off everything and wait gleefully, their brains anchored on that all bear markets have a magnitude of 60%. They were slow to get back in, because the run up in January 2012 was swift, without much pull backs, and that hey, this could just look like another counter rally!

Morgan Housel have a suggestion ( What I plan to do when market crashes) Far more systematic.

The returns past 7 years

Given 2 more years, how did the STI ETF fare if the friend continues to average $1000 in every month. His cost balloon to $86,217. A lesson here is how channelling more to Wealth Building (i felt $1000 is a large sum by itself) moves you closer to financial independence than a low savings rate.

He accumulated 29,608 units. His total return inclusive of dividends is 24%.

Using XIRR to compute the rate of return

Someone from my Facebook group commented that I should be using XIRR to compute the returns that my friend enjoyed. Specifically we want to know what is his rate of return compounded yearly. XIRR makes sense for investments where there are much buying and selling within the asset, which in this case, there are much cash flow being added in and there are some dividends received.

It lets us know our rate or return as a comparison to other assets that we can put our money into, such as fixed deposits (0.20%), insurance endowment (2.6% to 4%?), individual stocks, REITs.

Warning: long image

The XIRR is 4.95%. That’s not too shabby! Certainly better than the endowments, fixed deposits and bonds. This surprised me somewhat, and am glad that someone forced me into this exercise.

Some explanation. The XIRR is computed using 2 columns, Year [E] and Net Cash Flow [I]. Cash paid is the negative amount that we put away into this asset. Cash received is the positive amount we gotten as dividends. At the end, row 104, we put in the current value of the 29,608 units at price $3.30.

If the price ends up at $3.50, the XIRR shoots up to 6.42%, if the price ends up at $3, the XIRR goes down to 2.71%.


I was tad surprised by the result, but I guess every one of us has blind spots in our knowledge. I hope someone is able to see the flaws of my analysis previously and highlighted it.

At the end of the day, greater returns means you have to put up with the fact that at times, the performance would look quite ugly. You need to develop and appreciate a passive investing philosophy so that you can tackle another market fall. This investing style is not a capital guaranteed style, and doesn’t pretend to be one.

I felt this can be the most passive investing methods out of all the others, especially when stacked next to the prevalent passive income investing via REITs and Dividend stocks. Compared to them, there is no evaluation, sine better quality companies in Singapore replaces weaker ones automatically within the Straits Times Index.

Compare this, to that you need to monitor whether the business in REITs and Dividends business is doing well, whether they are at the right price to purchase more. If they are not at the right price to purchase more, you have to look for even more businesses.That sounds much more active than necessary if you asked me.

Do let me know what you think about this review.

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JoshLab Investments

Friday 24th of July 2015

Hi Kyith,

Would it be possible to invest just $300 per month instead of $1?



Tuesday 11th of August 2015

Hi Josh,

I don't understand the question. Do u mean can you invest 300 instead of 1000?

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