Share Tips For Hari Raya Haji

Selamat Hari Raya Idul Adha everyone!

Hari Raja Haji is also known as the “Festive of Sacrifice”. It honours the willingness of Abraham to sacrifice his promised son as an act of submission to God’s command.

With “sacrifice” the theme of the day, I wonder how many of us are willing to sacrifice something today for something better tomorrow.

For instance, how many of us would be prepared to sacrifice, say $100, a month in exchange for something more in a few decades time. The amount of money that we are talking about would only amount to around $3 a day.

In 2002, State Street Global launched a low-cost index tracker that mimicked the Singapore Straits Times Index (SGX: ^STI). The tracker, which was called the STI ETF (SGX: ES3) provides exposure to banks such as DBS Group (SGX: D05), telecom companies such as Singapore Telecommunications (SGX: Z74) and conglomerates such as Jardine Matheson Holdings (SGX: J36), through a one-stop-shop.

Since its launch in 2003, the Exchange Traded Fund has delivered an annual total return of 8.6%. In other words, a regular investment of S$100 per month could have turned into almost S$27,000 after 12-1/2 years. Without the dividend kicker, the return would have been 5.4%. Or put another way, the regular S$100 investments would have turned into over S$21,000 if you had taken out and spent the dividends.

The difference between the capital appreciation and the total returns highlights the importance of reinvesting dividends.

Over the same period, shares in Singapore Exchange (SGX: S68), for example, have risen from S$1.31 to S$7.28. On its own the capital appreciation of the shares equates to an annualised gain of 14.8%. But if the regular dividend payouts were reinvested rather than spent, the annual total return would have increased to 22.5%.

The difference between the two returns over, say, 20 years of regular investment could be quite significant. It could mean the difference between a pot worth S$463,000 and one of S$147,000, based on regular investments of S$100.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.