Regular Savings Plan – SPDR Straits Times Index ETF

On 2 October, I reported the annual results of SPDR Straits Times Index ETF (“STI ETF”). This exchange-traded fund invested in 30 FTSE Straits Times Index (STI) component stocks at varying percentages of total net assets.

Here is an idea. Instead of selecting certain stocks on the Singapore Exchange and trying to beat the STI index, why not invest directly in units of STI ETF? You will not be far from the benchmark since STI ETF is quite close to STI index.

The latest numbers can be seen on SPDR STI ETF webpage.

Latest information as at 30 October 2012
NAV per unit = $3.09
Dividend yield of stocks in STI ETF = 2.45%
STI = 3,038.73 points

Here is another idea. The Straits Times Index (STI) fluctuates every trading day. During a bad market, STI can move downward and the reverse is true also. It will be good to pick up STI ETF when Straits Times Index is low. However, timing the purchase can be futile. The idea of regular savings plan (RSP) can be applied in accumulating STI ETF, somewhat modified RSP.

Let’s say you have a pool of money to invest, you can set a date in a month to buy STI ETF (say middle of the month). At every middle of month, you buy say a lot (1000 units) of STI ETF at whatever price prevailing on that date. Over time, the average cost of all units purchased could be lower than if one wants to time the market. Besides accumulating, one must be willing to liquidate as long as the price prevailing for STI ETF is significantly higher than the average unit cost of purchase. Set a target to liquidate, say 10% profit on capital gains. Note that there are dividends declared by STI ETF. These dividends will increase overall profits from investing in STI ETF.

(History had it that equity generally outperformed after a recession. If one has the view that the STI will rise above the current level, STI ETF bought when the prices were low will benefit in the future.)

(Note: Regular Savings Plan is a plan where investor set a fixed amount for investment in an investment product , such as unit trust, every month . More units of unit trust can be purchased when the price is down, and vice versa.)

My usual caveat: There are risks involved in investing in STI ETF or any investments.

Copyright © 2012, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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