Yes, you heard it right. You don’t have to be a Crazy Rich Asian to invest in the Singapore stock market. You also don’t need thousands of dollars to buy your first stock. Lagi better, you don’t even need S$500 to start your investment journey.
With as little as S$12 per day, or S$360 per month, you can kickstart your stock market portfolio.
A basket of stocks
Enter the SPDR STI ETF (SGX: ES3). The SPDR STI ETF is an exchange-traded fund (ETF) that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI). The Straits Times Index contains the 30 largest companies in the local stock market in terms of market capitalisation, adjusted for their free float. The companies include the three major banks in Singapore, and the property giants such as CapitaLand Limited (SGX: C31) and City Developments Limited (SGX: C09).
Currently, the ETF is trading at a price of S$3.147 per unit. Thankfully, the local bourse operator reduced the standard board lot size in the local market from 1,000 units to 100 units in January 2015. So, to buy one lot of the SPDR STI ETF, investors would need S$314.70 without commissions, compared to S$3,147 before January 2015. Slapping on a S$30 commission, which is conservatively high, one would need around S$345. The amount translates to less than S$12 per day.
Since 2002, the SPDR STI ETF has produced an annualised return of around 4%, excluding dividends. With dividends included, the annual return goes up to 7%. This means that investors can double their money every 10.3 years, according to the Rule of 72.
There’s also the Nikko AM STI ETF (SGX: G3B), which is an ETF that also replicates the fundamentals of the Straits Times Index. At the time of writing, this ETF has a price of S$3.23 per unit. For a comparison between the Nikko AM STI ETF and the SPDR STI ETF, you can head here.
For those who lament — rightfully — that paying a commission that amounts to 8% to 10% for an investment of S$315 or S$323 doesn’t make sense, there’s also the regular savings plans (RSPs) offered by OCBC, POSB, Maybank, and PhillipCapital that investors can consider.
Get 30 stocks for the “price of 1”
A major benefit of investing in an ETF like those tracking the Straits Times Index is that it offers instant diversification.
Since the SPDR STI ETF tracks the Straits Times Index, the ETF, too, contains the same 30 companies as in the index – this holds true for the Nikko AM STI ETF as well. Without the existence of the STI ETFs, one would need to buy shares in each of the 30 companies individually to diversify his/her portfolio.
Another benefit of investing in the STI ETFs is that it could become almost risk-free if held for the long-term. Historical data from the Straits Times Index show that the longer you hold the index, the lower your odds of making a loss.
For example, from May 1992 to January 2016, the chances of the Straits Times Index making losses if held for a day is like a coin-flip – it’s nearly 50%. However, if the holding period is expanded to 10 years, there’s only a 17% chance of losing money. If the holding period is stretched to 20 years, the probability of losing money goes to zero.
The chart below illustrates what I just mentioned:
A plan for the brave hearts
For those who want higher total annual returns than the 7% offered by the SPDR STI ETF, and have time on their side, can also consider investing in individual stocks. There are value shares, growth shares, dividend shares, and real estate investment trusts (REITS) that investors can take their pick from. The board lot reduction to 100 shares has certainly made investing more affordable. But always remember that you should know what you are buying into and not invest based on hearsay.
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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 contributor Sudhan P doesn’t own shares in any companies mentioned.