In March, the Monetary Authority of Singapore (MAS) said that inflation in February had grown by 4.9% compared to a year ago. The rise in the inflation figure was due in large part to an increase in housing and private transport vehicle prices.
Last week, the Straits Times had a headline that went “Hawker prices go up, fishball noodles and mixed vegetable rice cost more: CASE survey”. The Consumers Association of Singapore (CASE) had conducted a study on the prices of hawker food by comparing its yearly change. Turns out, there was an ‘upward trend in the prices of the five food items’ tracked in the study. It seems that even the humble hawker centre refuses to be left out of the inflation-bandwagon.
According to MAS, core consumer-prices rose annually by 2% for 10 years from Jan 1992 to Jan 2013 – that is, Core inflation has been running at 2% per year if we exclude the price changes of our homes and private vehicles. But, if we include the prices of accommodation and private transport, the inflation figure will likely be higher. That is a logical conclusion if we use recent inflation statistics as a guide – February 2013’s CPI-All Items inflation, including accommodation and private vehicle transportation, came in at 4.9% year-on-year while Core inflation only picked up by 1.9%.
With prices of both big and small-ticket items like cars and hawker food rising, it raises the urgency for the need to invest to protect your capital’s future purchasing power.
So, can Singapore’s stock market deliver returns that are at least higher than the 2% Core Inflation figure over the past decade? Let’s take a look at a plain-vanilla index tracker like the SPDR Straits Times Index Exchange Traded Fund (SGX: ES3). The ETF, which mimics the movement of the Straits Times Index (SGX: ^STI), has grown by 10.10% per year (excluding dividends) for 10 years ending 31 March 2013.
The inclusion of dividends will surely improve the return-results for the ETF (the dividend yield for the fund’s currently at 2.4%). But even without dividends, it has handily beaten the 2% Core inflation figure.
Besides capital gains, investors can also consider dividend-paying shares for yields that match or beats February’s 4.9% CPI-All Items inflation figure. Some examples of such shares include Singpost (SGX: S08) and Venture Corp (SGX: V03). The former is a postal and logistics provider which sports a dividend yield of 4.9% at its current share price of $1.255. The latter, an electronics services provider, sees its shares selling for $8.50 with a dividend yield of 5.9%.
To be sure, the stock market is volatile – the STI fell by more than 50% from May 2008 to March 2009, when the global economy was mired in a financial crisis. But, investors who adopt the long-term view and ride out the volatility while investing regularly can have pretty decent results.
The stock market is no miracle drug but with inflation appearing everywhere, it pays to know what it can do for your capital. Don’t let inflation get the better of you.
Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.
The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook to keep up-to-date with our latest news and articles.
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.