Of course, you have the choice to say “Yes or No”. Afterall, it is your money.
Take a minute to consider why most people don’t able to give a resounding “No!”? Published financial data have consistently showed that not investing your money is a bad decision due to Fiat money is continuing decrease in its value, mainly from inflation, through the years.
The mixed answers to this question can be as varied as follow:-
“I’ve already so much money that the interests earned from secured bonds or bank deposits are icings of the cake. Not that important to get higher return from investing in other financial asset classes.”
“I’ve lost so much money in investing in the past. I’ve no more spare cash to waste on them (or in other words, I’ve no confidence in my ability to get higher returns from my investments).
“I don’t know how to get started or don’t have the appetite to stomach the huge swings of prices of my invested products.”
and so on. All of these are valid answers.
What To Buy
The majority of investors usually select blue-chip stocks for its stable earnings.
Reason: Blue-chip companies offer security during periods of slowed growth due to their intelligent management teams and ability to generate stable profits. If the stock market is experiencing a bear market, investors don’t need to worry about their investments in blue-chips because, generally, they recover.
| Two Approaches to Pick Blue Chips | |
| Value Factor | Profitability Factor |
| Asset Heavy | Asset Light |
| Undervalued | Fairly Valued |
| Capital Gain (Buy Low & Sell High) | Dividentds + Capital Gain |
| Real estate, oil & gas, shipping sectors | F&B, Healthcare services , education sectors |
| (Extract from Dr. Wealth’s SGX Webinar “Selecting Your Blue Chips” on 05-Sep-18) | |
| Note:- In comparison, REITs, usually give out higher dividends vs other companies in either consituents. | |
Let look at STI performance from 2000 to 2017. The Straits Times Index (STI) comprises the largest 30 companies listed on Singapore Exchange (SGX) by full market capitalisation that meet stated eligibility requirements, including free float and liquidity.
From 2000 to 2017, the annualised return of #STI is 1.6% p.a. Since inflation from 2000 (CPI 74.809) to 2016 (CPI 98.932) was about 1.8 per cent – does it mean that the real annualised return of the STI was about -0.2 per cent?
(Extract from Leong Sze Hian’s article, “STI:-0.3% p.a. real return last 20 years?” dated .
Fast forward to Friday, Sep 07, 2018, the closing points of STI index is 3147.69. Inflation Rate in Singapore averaged 2.60 percent from 1962 until 2018.
No wonder being good at investing in local stock market and making higher return than inflation rate is not a walk in the park.
Let look at some Investing Return Figures from overseas stock market investments.
A better proposition indeed, though the investor will require a higher level of investment knowledge and understanding of overseas markets, global economy and the impact of currency risks.
That leaves us to my original question, “Can I Afford Not To Invest My Money?”
You possibly would like to say a “No” if you could have a more reliable way of investing your hard-earned money for higher return in building up your fund for big ticket expense item or retirement nest egg.
The “Sage of Omaha” Warren Buffett may provide a clue on how you could do it more confidently. In 2014 letter to the shareholders of his company, Berkshire Hathaway, he has left instructions for his executors on how they should invest his money for his wife when he dies.
The legendary investor was outlining the “Warren Buffett income drawdown plan”. “Income drawdown” is the product that retired savers must use if they don’t buy an annuity. What happens is that when you retire in US, and after you have withdrawn a quarter of your pension savings as a tax-free lump sum, the remainder goes into a ring-fenced fund from which you can withdraw, subject to certain rules, your retirement income.
Drawdown investors face the problem of where to invest. They have a more or less free choice, encompassing cash, shares, bonds, funds and even, depending on the company that runs the plan, more unusual assets such as commercial buildings.
Mr. #Buffet said, “My advice to the trustee could not be more simple: put 10pc of the cash in short-term government bonds and 90pc in a very low-cost S&P 500 index fund.” He even tipped a particular tracker fund: “I suggest Vanguard’s.” Mr Buffett said of his suggested retirement portfolio: “I believe the long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”
(Extract from a Telegraph article titled, “Warren Buffet: My Perfect Pension Portfolio” written by Richard Evans.)
Can you apply the investment strategy, Mr Buffett has recommended for his wife here?
Yes. though not the particular investment products he recommended in his annual letter to shareholders of Berkshire Hathaway.
Short-term government bond – Singapore Savings Bonds Savings Bonds are a special type of Singapore Government Securities (SGS) with features that make them accessible and suitable to individual investors.
- Eligibility – Individuals only
- Term – 10 years
- Interest – Paid every 6 months. At issuance, rates are fixed based on the prevailing SGS yields and locked in for each issue.
- Issuance – Monthly
- Redemption – Monthly, with no penalty. Principal and any accrued interest will be paid.
- Investment amount – Minimum of $500, and subsequent multiples of $500 up to a cap to be announced.
- Non-tradable – Savings Bonds are non-marketable securities and cannot be bought or sold in the secondary market.
Low-cost index fund – STI ETF is a good investment option An ETF is a type of asset class, much like stocks or unit trusts. ETFs are listed and traded on a stock exchange. You invest by buying shares of the ETF, essentially owning a tiny portion of the total fund. When you buy these shares at a certain price, and the price goes up, you can sell the shares and make a small profit. You can also earn money through dividends. An ETF tracks or replicates the performance of a specific index, a set of bonds, a commodity, such as gold or silver, or a basket of assets. In many cases, an ETF tracks a stock index.
Below are two STI ETFs available in Singapore:
- Spdr STI ETF was first introduced in 2002
- Nikko STI ETF was only listed in 2009
If you prefer not to put in a lump sum of money all at once, you can choose a monthly investment approach where you contribute a fixed amount each month for investing through a Regular Savings Plan.
Lumpsum investing is more appropriate for a bullish market.
Dollar cost averaging (DCA) technique may be a better choice of investing in a bear market.
Note:- Dollar-cost averaging (DCA) is an investment technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. The investor purchases more shares when prices are low and fewer shares when prices are high.
| Investing Strategy | Buy ($) | Share Price ($) | Quantity |
| Lump Sum | 5,000 | 20 | 250 |
| Dollar Cost Averaging | |||
| Month 1 | 1,000 | 20 | 50.00 |
| Month 2 | 1,000 | 16 | 62.50 |
| Month 3 | 1,000 | 12 | 83.33 |
| Month 4 | 1,000 | 17 | 58.82 |
| Month 5 | 1,000 | 23 | 43.48 |
| Total | 5,000 | Total | 298.14 |
| End of Month 5 | Shares Holding | Avg Price ($) | |
| Lump Sum | 250 | 20 | |
| Dollar Cost Averaging | 298.14 | 16.77 | |
If you want to know about investing in STI ETF, I suggest you read Peter Lin’s article on “The STI ETF Step-by-Step Guide“, a blogpost in MoneySmart.sg.
There, you could say that “Investing is simple, not easy” just like Mr. Warren Buffet once said.
Disclaimer:- The information provided and the products and/or services accessible through this website are respectively for personal use, not a financial advice. Please seek help from a certified financial planner/adviser to design for you, a realistic and effective retirement financial plan.
Hope you find the blogpost useful. Bye from now.
Reuben Ong