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Monthly Investment Plan vs Lump Sum Investing in STI ETF: Which Is Better Over 5 Years?

How much would you have made if you just invested $100 a month or $1,200 of your year-end bonus in a STI ETF?


As a barometer of the Singapore economy, the Straits Times Index (STI) continues to show growth potential and resilience, while delivering enviable returns.

It is no wonder that many Singapore investors, especially new ones, seek exposure to the STI through the two ETFs that track the STI, namely, SPDR Straits Times Index ETF (SGX: ES3) and Nikko AM Singapore STI ETF (SGX: G3B).

When buying into a STI ETF, investors need to decide whether to invest in one lump sum, or perform dollar cost averaging. In practical terms, Singapore investors probably wonder if they should invest $100 every month through a Regular Shares Savings (RSS) plan (also known as a monthly investment plan) or $1,200 annually, say from their year-end bonus.

Out of curiosity, we decided to compare the differences in investment returns we would have made. The comparison is for educational purposes only and by no means are we saying one approach is superior to another. Your returns, especially when you lump sum invest, depend very much on the ETF price at the time of your purchase. Also, do note that all investments carry risk, even a “Blue Chip” index like the STI, and past performance is no guarantee or indication of future performance.

We all know that the longer you’re invested in the market, the more exposure you have to the market’s growth and dividend returns. To mitigate this effect, our lump sum investment will be made 6 months after we start our monthly investment plan.

Read Also: Active Investing VS Passive Investing, Lump Sum VS Dollar Cost Averaging: Which Investment Strategy Suits You Best?

Dollar Cost Averaging Into A STI ETF

There are 4 different Regular Shares Savings (RSS) plans available, namely: OCBC Blue Chip Investment Plan (BCIP) , Maybank Kim Eng Monthly Investment Plan , POSB Invest Saver , Phillip Share Builder Plan.

Read Also: Which Monthly Investment Plan Is Suitable For You?

Dollar cost averaging builds up gradual exposure to the STI ETF, and reduces the risk of entering the market at an unfavourable time. By investing a fixed amount of money each month, you buy more units of the ETF at market lows, and less units at market highs.

For this illustration, we’ll be using the POSB Invest Saver plan to buy into the Nikko AM Singapore STI ETF (SGX: G3B), putting in $100 every month.

The POSB Invest Saver carries a 1% sales charge that is deducted based on your subscription amount – which in our case will be $1.

The purchase price of your chosen ETF will be the average subscription price on the next business day after the 15th of each month. Since we don’t have access to the subscription price that POSB bought for their clients, for our calculations, we will take the average price of the ETF between market open and close of that day.

Note that fractional ETF units are not allowed, so the balance amount that can’t be used to buy any more ETF units will be refunded.

Year 1 Of DCA Into Nikko AM Singapore STI ETF

Let’s see how we would have done in our first year of dollar cost averaging into the STI, starting from July 2013. All market price data is from the excellent StockFacts by SGX.

Month Average Unit Price On Purchase Day ($) Units Purchased Refunded Balance ($)
July 2013 3.29 30 0.30
August 2013 3.28 30 0.60
September 2013 3.26 30 1.20
October 2013 3.26 30 1.20
November 2013 3.26 30 1.20
December 2013 3.10 31 2.90
January 2014 3.19 31 0.11
February 2014 3.12 31 2.28
March 2014 3.12 31 2.28
April 2014 3.32 29 2.72
May 2014 3.38 29 0.98
June 2014 3.40 29 0.40

 

Average Unit Purchase Price Over 12-months: $3.25
Total Units Purchased Over 12-months: 361
Total Refunded Balance Over 12-months: $16.17

During this period, there was one dividend payout of $0.045 on 10 October 2013. We held 90 units at that time, giving us a payout of $4.05.

By mid-July 2014, G3B was trading at $3.35, which gives our investment portfolio of 361 units a value of $1,209.35. Adding our dividend returns and refunded balances, our initial $1,200 investment is at $1,229.57 after 12-months.

 

Year 2 Of DCA Into Nikko AM Singapore STI ETF

Month Average Unit Price On Purchase Day ($) Units Purchased Refunded Balance ($)
July 2014 3.35 29 1.85
August 2014 3.39 29 0.69
September 2014 3.40 29 0.40
October 2014 3.27 30 0.90
November 2014 3.39 29 0.69
December 2014 3.40 29 0.40
January 2015 3.38 29 0.98
February 2015 3.48 28 1.56
March 2015 3.42 28 3.24
April 2015 3.60 27 1.8
May 2015 3.56 27 2.88
June 2015 3.44 28 2.68

 

Average Unit Purchase Price Over 12-months: $3.42
Total Units Purchased Over 12-months: 342
Total Refunded Balance Over 12-months: $18.07

During this period, there were two dividend payouts: $0.0465 on 1 July 2014 when we held 361 units, and $0.0495 on 6 January 2015 when we held 536 units. This gives us a total dividend payout of $43.32 for the 12-month period.

Total Units Held At The End Of Year 2: 703
Total Dividends Received At The End Of Year 2: $47.37
Total Refunded Balance At The End Of Year 2: $34.24

 

Year 3 Of DCA Into Nikko AM Singapore STI ETF

Month Average Unit Price On Purchase Day ($) Units Purchased Refunded Balance ($)
July 2015 3.41 29 0.11
August 2015 3.18 31 0.42
September 2015 2.96 33 1.32
October 2015 3.12 31 2.28
November 2015 3.00 33 0.00
December 2015 2.95 33 1.65
January 2016 2.68 36 2.16
February 2016 2.71 36 1.44
March 2016 2.91 34 0.06
April 2016 2.97 33 0.99
May 2016 2.83 34 2.78
June 2016 2.86 34 1.76

 

Average Unit Purchase Price Over 12-months: $2.97
Total Units Purchased Over 12-months: 397
Total Refunded Balance Over 12-months: $14.97

During this period, there were two dividend payouts: $0.0482 on 3 July 2015 when we held 703 units, and $0.0344 on 4 January 2016 when we held 893 units. This gives us a total dividend payout of $64.60 for the 12-month period.

Total Units Held At The End Of Year 3: 1,100
Total Dividends Received At The End Of Year 3: $111.97
Total Refunded Balance At The End Of Year 3: $49.21

 

Year 4 Of DCA Into Nikko AM Singapore STI ET

Month Average Unit Price On Purchase Day ($) Units Purchased Refunded Balance ($)
July 2016 3.00 33 0.00
August 2016 2.96 33 1.32
September 2016 2.93 33 2.31
October 2016 2.92 33 2.64
November 2016 2.91 34 0.06
December 2016 3.05 32 1.40
January 2017 3.07 32 0.76
February 2017 3.16 31 1.04
March 2017 3.23 30 2.10
April 2017 3.22 30 2.40
May 2017 3.34 29 2.14
June 2017 3.34 29 2.14

 

Average Unit Purchase Price Over 12-months: $3.09
Total Units Purchased Over 12-months: 379
Total Refunded Balance Over 12-months: $18.31

During this period, there were two dividend payouts: $0.0344 on 1 July 2016 when we held 1,100 units, and $0.0604 on 3 January 2017 when we held 1,298 units. This gives us a total dividend payout of $116.33 for the 12-month period.

Total Units Held At The End Of Year 4: 1,479
Total Dividends Received At The End Of Year 4: $228.30
Total Refunded Balance At The End Of Year 4: $67.52

 

Year 5 Of DCA Into Nikko AM Singapore STI ETF

Month Average Unit Price On Purchase Day ($) Units Purchased Refunded Balance ($)
July 2017 3.39 29 0.69
August 2017 3.40 29 0.40
September 2017 3.37 29 1.27
October 2017 3.46 28 2.12
November 2017 3.49 28 1.28
December 2017 3.55 27 3.15
January 2018 3.63 27 0.99
February 2018 3.54 27 3.42
March 2018 3.59 27 2.07
April 2018 3.58 27 2.34
May 2018 3.66 27 0.18
June 2018 3.47 28 1.84

 

Average Unit Purchase Price Over 12-months: $3.51
Total Units Purchased Over 12-months: 333
Total Refunded Balance Over 12-months: $19.75

During this period, there were two dividend payouts: $0.0231 on 3 July 2017 when we held 1,479 units, and $0.0596 on 2 January 2018 when we held 1,649 units. This gives us a total dividend payout of $132.44 for the 12-month period.

Total Units Held At The End Of Year 5: 1,812
Total Dividends Received At The End Of Year 5: $360.74
Total Refunded Balance At The End Of Year 5: $87.27

Read Also: Step-By-Step Guide To Investing Using Regular Shares Savings (RSS) Plan

G3B’s price as of 29 June 2018 was $3.40. At the end of 5 years, our portfolio of 1,812 units would have a value of $6,160.80. Adding in dividends received and refunded balances, we would be at $6,608.81. That represents more than 10% gain, from an initial capital of $6,000.

It is important to note that while you dollar cost average into an investment to diversify your risk of getting in at an unfavourable time, the time when you choose to exit your investments is significant as well, perhaps even more so.

Lump Sum Investing Into The STI ETF

As mentioned, the scenario we are applying for a lump sum investor is someone who invests a portion of their year-end bonus.

FSM One is one of the most affordable online stock brokerages, with trading fees of 0.12% and a minimum of $10, whichever is higher. Since we’re only investing $1,200 each time, we would be charged $10, and have $1,190 available for investing.

Read Also: Singapore Online Stock Brokerage Account Fees Comparison (2018 Version)

Assuming we invest on the first trading day of the year, this is how our investments will look like:

Date Of Purchase Average Unit Price On Purchase Day ($) Units Purchased Balance ($)
2 January 2014 3.23 368 1.36
2 January 2015 3.43 346 3.22
4 January 2016 2.94 404 2.24
3 January 2017 2.97 400 2.00
2 January 2018 3.50 340 0.00

A lump sum investor would have received the following dividends:

$17.11 in Year 1: $0.0465 dividend on 1 July 2014 when 368 units held.
$52.63 in Year 2: $0.0495 dividend on 2 January 2015 when 368 units held and $0.0482 dividend on 1 July 2015 when 714 units held.
$70.73 in Year 3: $0.0452 dividend on 4 January 2016 when 714 units held and $0.0344 dividend on 1 July 2016 when 1,118 units held.
$102.60 in Year 4: $0.0604 dividend on 3 January 2017 when 1,118 units held and $0.0231 dividend on 3 July 2017 when 1,518 units held.
$90.47 in Year 5: $0.0596 dividend on 2 January 2018 when 1,518 units held.

Total Dividends Received: $333.54
Total Balance: $8.82
Total Units Held: 1,858

Using the same G3B’s price of $3.40 on 29 June 2018, our portfolio of 1,858 units would have a value of $6,317.20. Adding dividends and our balance, our initial capital of $6,000 would have grown to $6,659.56.

In Summary

Dollar Cost Averaging with Our Monthly Investment Plan Lump Sum Investing Annually
Total ETF Units Held At The End of Year 5 1,812 1,858
Total Dividends Received At The End Of Year 5 $360.74 $333.54
Unused Balance At The End Of Year 5 $87.27 $8.82
Total Portfolio Value, Including Dividends And Unused Balance $6,608.81 $6,659.56

 

As you can see, total returns of lump sum investing beats our a dollar cost averaging approach slightly and the total amount of ETF units held is higher. In other words, we gained more exposure to the STI through our lump sum approach, which is our goal.

It is worth remembering that the duration your funds are invested have the most significance when it comes to your portfolio growth, and the ability to hold your investments through market lows is important as well.

Regardless of which investing method you choose, it is not difficult to begin your investing journey and get exposure to the growth and dynamism of the Singapore market. Begin your investment journey today!

Read Also: Complete Guide To Investing In The STI ETF


 
 

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