People invest for all kinds of different reasons; some invest to see their child through university; some invest to buy their dream car or set foot on Europe for a snowy vacation; and some invest because it is just so much fun (that’s us at the Motley Fool!). But, for whatever reason that people invest, the desired outcome’s always the same – we want our money to grow.
The stock market’s actually one of the best places to grow our money and build lasting long-term wealth as we benefit from the growth of Singapore’s economy through ownership of corporate Singapore. But not everyone has the time or the ability to study individual companies and invest accordingly. For such individuals, the next best alternative would be low-cost index funds or ETFs that track market indices, a move that Warren Buffett approves of as well.
To find out more about the kind of returns an investor could have obtained, I constructed a theoretical portfolio with fuss-free maintenance. The portfolio, starting from 2003, requires a person to invest only $500 at the start of every month into the SPDR Straits Times Index ETF (SGX: ES3). The SPDR STI ETF tracks the movement of the Straits Times Index (SGX: ^STI) by holding shares in a similar composition as the index and an investor in the ETF would effectively be investing in Singapore’s stock market.
The investment strategy would be familiar to some as a form of Dollar Cost Averaging, where an investor mechanically invests a fixed sum of money into an investment instrument at regular intervals. We won’t go into the relative merits of a DCA approach vs Investing-in-a-lump-sum approach here but let’s just say that the former is a lot more achievable for regular folks like you and me.
After spending a nice weekend afternoon engaging in exciting number crunching, some interesting results for the portfolio, without accounting for any dividends, emerged. They are shown below:
- The $6,000 invested in 2003 would have turned into $13,500 by 2013 – an investor’s money would have more than doubled in 10 years, excluding dividends (which would surely have improved returns).
- To date, every year from 2003 has seen positive returns besides 2007. The returns from the year of investment to 2013 have ranged from 2003’s 125% to 2007’s -4.3%, with the lowest positive return for a full-year being 2011’s 7.8%.
- The compounded annualised return for the portfolio stands at 5.6%, after taking into account the time at which the investments take place. While that figure is hardly eye-catching, it has beaten Singapore’s average historical inflation rate of 1.7%, according to MAS. The dividends from the ETF also provide additional returns each year which can be used for re-investment, juicing returns further, or for income. The SPDR STI ETF’s current dividend yield stands at 2.42%.
- The total amount of $61,500 ($500 for 123 months) that has been invested since Jan 2003 to March 2013 would be worth $83,778 now.
- Staying invested in the stock market for long periods of time helps to improve returns. 2003 and 2004 (72.7% return) provided the best returns for the 10 year period.
Foolish Bottom Line
Here at the Motley Fool, we don’t recommend investing in the stock market for people looking to get-rich-quick. But, for investors who stay the course and invest regularly, and not flip in and out of stocks, the payoffs can be good. We believe that the best person to manage your finances is you. Even if there’s a lack of time and ability to study individual companies for investment, it is still worthwhile to know what the stock market can offer and help you to grow your nest-egg – slowly, but surely.
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The Motley Fool’s purpose is to help the world invest, better. The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Contributor Chong Ser Jing doesn’t own shares in any companies mentioned.