The interest rate from a Singapore bank’s basic deposit account is around 0.05% per annum. If we were to just leave our money in the bank for it to grow, we would surely be disappointed. It would take 1,440 years for us to double our money with a 0.05% return per annum. The paltry interest rate is also hardly enough to beat inflation, which averages about 3% in Singapore. That is why we all have to invest to have a secure future. One way for beginners to invest through the stock market would be through an exchange-traded fund (ETF)….
The interest rate from a Singapore bank’s basic deposit account is around 0.05% per annum. If we were to just leave our money in the bank for it to grow, we would surely be disappointed. It would take 1,440 years for us to double our money with a 0.05% return per annum. The paltry interest rate is also hardly enough to beat inflation, which averages about 3% in Singapore.
That is why we all have to invest to have a secure future.
One way for beginners to invest through the stock market would be through an exchange-traded fund (ETF). ETFs are open-ended investment funds that track the performance of an underlying index or asset class.
A simple ETF
One of the simplest forms of ETF available for retail investors in Singapore is the SPDR STI ETF (SGX: ES3). The SPDR STI ETF 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 household names such as Singapore Airlines Ltd (SGX: C6L) and Singapore Telecommunications Limited (SGX: Z74). The three major Singapore banks are also part of the Straits Times Index.
At the time of writing, the SPDR STI ETF is trading at a price of S$3.334 per unit. To buy one lot (or 100 units) of the ETF, investors would need S$333.40, excluding commission. With a S$30 commission, which is conservatively high, one would need slightly below S$364.
Investors can invest periodically in the SPDR STI ETF using a method that is known as “dollar-cost averaging”. This is done by investing a fixed amount of money over time, say $3,000 every three months. When the units are cheaper, you buy more with the money, and vice versa. Over time, your cost of capital averages out.
Return of the STI ETF
For the past 10 years, the SPDR STI ETF has produced an annualised return of 6.6%, excluding dividends. With dividends re-invested, the annual return goes up to 9.6%. This means that investors can double their money every 7.5 years, according to the Rule of 72.
Of course, there will be some years where the ETF goes on to make more than 6.6% and some years less than that. However, over the long-term, it’s a general trend to see the stock market rise more than it falls. This is due to inflation, population growth and changes in the index itself where companies that are not doing well get kicked out of the index to be replaced by another firm.
Investing in stocks
For those who wish to earn higher total returns than the 9.6% and potentially double their money way faster than eight years, you can choose to invest in individual stocks. There are many such shares to choose from on the Singapore stock market. For instance, companies such as BreadTalk Group Limited (SGX:CTN), Valuetronics Holdings Limited (SGX:BN2), and Ho Bee Land Limited (SGX:H13) have given shareholders impressive returns over the long term.
Shares in BreadTalk ballooned 568% from September 2008 to September 2018 while Ho Bee’s shares grew more than 280% during the same period. Those returns easily trump that of the SPDR STI ETF.
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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.