My thoughts on using the Regular Savings Plan (RSP) from DBS bank to dollar cost average (DCA) into the STI index.
1. Introduction to STI ETF:
Have you ever come across the term STI ETF in investing such as the screenshot below?
Most probably yes if you are thinking of what to shortlist or purchase in the Singapore stock marketπ
Current there are two ETFs that tracks this index mainly:
- SPDR STI ETF (SGX: ES3)
- Nikko AM STI ETF (SGX: G3B)
*STI: The Straits Times Index (Top 30 largest and most liquid companies listed in Singapore)
*ETF: Exchange Traded Funds (a basket of stocks)
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| https://sg.finance.yahoo.com/quote/G3B.SI?p=G3B.SI&.tsrc=fin-srch |
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| https://www.sgx.com/indices/products/sti#Constituents |
2. Is This A Good Investment?
- I will be direct and give you a straight 'No', absolutely not to buy the STI ETF.
- Do not waste your time if you are new to investing and have little to no experience in buying stocks at this moment of time.
- Speaking of experience, I have been there and done that buying into STI ETF before and it was not the right decision which I will explain more below.
- There are definitely more appropriate stocks to buy in the market if you do your due diligence to research and find out more.
Yes, under the condition where the STI ETF is only beneficial for those longer term and more experienced investors who
- Know exactly what they are doing and why they are buying this in the first place.
- Holding the ETF for at least 3-5 years minimum and do nothing.
- Purchasing the ETF in lump sum or dollar cost averaging (DCA) a substantial amount to reap the benefits of the scheduled dividend payouts each year.
- The STI is heavily concentrated on the finance sector with all 3 banks mainly OCBC, DBS and UOB part of the index.
- The price does not change that much over the years. It does however pay a stable stream of dividends to the investor. Most importantly, dividends are not taxable in Singapore.
- Year 2020’s dividend yield stood at 4.31% for G3B and 3.91% for ES3. Expect this yield to drop when 2021 comes.
3. Beware Of Marketing That Are Too Good To Be True:
- There are alot of marketing out there telling you the benefits of buying into the STI ETF where it is as easy as ABC to start investing in STI ETF without the need to even set up a CDP account or much hassle.
- I was one of those fools who believed in that at the beginning, signing myself up for the NIKKO AM SINGAPORE STI ETF (G3B) under the DBS Regular Savings Plan. π
- If you are an existing DBS account user, you will have access to this investment feature under 'Unit Trust'.
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| https://www.dbs.com.sg/ |
- I would put $100 every month into this regular savings plan and DBS would purchase 100 SGD worth of this G3B stocks on my behalf.
- Worst of all, I bought it last year πjust before the Covid19 pandemic happened and it totally wreaked havoc on the ETF price.
4. My Actual G3B Portfolio Results:
- DCA 100 SGD every month into this regular savings plan.
- First started on November 2019 at the price of 3.36 SGD per unit (this was at the bull run)
- Next covid19 happened and the price dropped to 2.60 SGD per unit by mid March 2020 (almost a 23% drop in price) π
- Have been DCA-ing for one full year before I eventually threw in the towel and stopped the savings plan for good. (best decision ever as I use that money to invest in other stocks with higher capital gains)
- My total capital loss was -6.8% with total dividends received to be a mere $34.71 (2.90% dividend yield). π
- Some people may argue that spending only one year in this ETF is too short as the pandemic is still on-going and a vaccine might be coming out soon end of this year or next year.
- But I wasn't willing to wait that long for a vaccine to be launched and it could take another couple of years before the prices eventually rises back to the 3.6 SGD per unit which I bought to breakeven my losses.
5. My Take On STI ETF:
- It will never be a dividend growth stock (prices no change 10 years ago till today)
Let me illustrate with some data:
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Currently the ETF price is 2.94 SGD per unit as of 19 December 2020. I have drawn a purple horizontal line across to show you the impact across the last 10 years. If you see this historical price chart, 2.94 SGD per unit also happened somewhere close on the:
Where were the growth in price? π
The only reason to hold on to this is just to reap the dividends |
- As mentioned above, a high proportion of this ETF is concentrated in the finance sector by companies such as UOB, OCBC and DBS. (it might be better and logical to just buy straight into these and avoid those poor performances stocks in the ETF)
- If you are a young investor or investor with little capital for investment, putting in 100 SGD or even 500 SGD per month will not give you significant dividend returns as the amount of stock you hold is just too little.
- It will be more logical to avoid this for now and spend the amount of cash on other types of stocks or ETF out there with a higher stock price appreciation.
For those beginners in stock investing, you are free to buy if you feel that STI ETF is good but the loss in this case will be the opportunity cost of 'time' and 'resources' poured into a product with slow returns. π
