Let’s do a stock take on our STI ETF Dollar Cost Averaging (DCA) and Singapore Permanent Portfolio at the end of Jul 13. (Click Here For A Comprehensive Guide To the STI ETF)
STI ETF DCA
Our STI ETF DCA simulated portfolio started in Jan 2008 which invests S$500 on a monthly basis. As at Jul 13, the simulated portfolio had invested S$33,000 and made S$10,819.03 profits (including dividends). This means an annualised returns of 7.7%. Follow the performance of this simulated portfolio as we continue to do this “forward testing”. You can read more about the performance tracking here.
Singapore Permanent Portfolio
The simulated Singapore Permanent Portfolio was started in Jan 2012. Although gold price had went down significantly, we did not have the opportunity to re-balance the portfolio because the weightage of gold had never gone down to 15% of the portfolio. Most investors are afraid to see the components dropping in price but in contrary, it is good to have more volatility of the individual components because there are more opportunities to re-balance, and more re-balancings translate to higher returns. We will stick by the rules to re-balance. If the current trend continues, we should be able to re-balance if stocks constitutes 35% of the portfolio or gold constitutes 15% of the portfolio, whichever happens first. As at 31 Jul 13, the weightage of the Permanent Portfolio is as follow:
- Stocks (STI ETF) – 29.37%
- Bonds (SGS 30-year Bonds) – 22.97%
- Gold (SPDR Gold Trust) – 19.59%
- Cash – 28.07%
In terms of performance, the simulated portfolio has returned 0.51%. The returns are low because Permanent Portfolio is not a high-yielding portfolio. This means that the portfolio does not rely on high rates of dividends or coupons payments. The main source of returns is capital gains through portfolio re-balancings. This simulated portfolio has not gone through any re-balancing to date, and hence, the cause for low returns. If we take alignment to the U.S. Permanent Portfolio, the long term average annual returns to expect is about 8%. The other main advantage of the portfolio is its low volatility. After going through a rough period whereby stocks, bonds, and gold suffered declines in price, the portfolio worst drawdown was only 9.32%. This is pretty impressive when compared to many other portfolios. You can follow the portfolio tracking here.
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.
Which broker do you use for DCA? I have a Standard Chartered brokerage account but they don’t allow odd lots; so I can’t fully utilize money set aside to invest in STI ETF.
You can take a look at POEMS share builder plan. You can buy odd lots.
Hi Alvin, what are your thoughts on implementing dca for sti etf thru the ocbc blue chip investment plan or posb saver-invest ?
Both offer rsp mechanisms , with lower fees than poems sbp. What is your view on holding the shares in your own cdp acct vs holding in a custodian acct under these institutions ?
I m thinking of starting on dca for sti etf. Appreciate your advice, thks.
Regards,
Ben
Hi Ben, I would say finally they are doing the RIGHT THING!
First, any one of these plans is fine. It is suitable for people who do not have a large capital to start with and this is one of the best ways to kick start an investment journey.
Second, choose the cheapest plan available. In this case, it seems like OCBC charges the lowest at 0.3%. POSB at 1%. Both without minimum charge. POEMS at flat charge of $6.42 if amount is less than $1,000. It is about 0.6% if you invest $1,000 per month. Hence, OCBC offers the best rate.
Third, OCBC and POSB invest in Nikko STI ETF while POEMS invest in SPDR STI ETF. Either ETF is fine too since Nikko is backed by DBS and SPDR by S&P.
Fourth, the best is to hold shares in CDP as much as possible. All these regular savings plans are custodian accounts. OCBC, POSB and POEMS are reputable and well governed so I do not see much of a problem with the scripts being custodised by them.
I’m interested in investing STI-ETF but have no knowledge of how to go into it. Please advice.
You can read more about STI ETF in this link: http://www.bigfatpurse.com/2007/11/straits-times-index-exchange-traded-fund-sti-etf/
and this link: http://www.bigfatpurse.com/2011/02/4-reasons-to-invest-in-sti-etf/
If you are interested to set up a regular savings plan, you can approach the staff from OCBC or POSB or Phillip Capital to guide you.
the ocbc dcb allows to choose 20 blue chip companies in multiples of $100. i wonder if it’s possible to buy/sell based on technical analysis, n by doing this as compared to buy/sell on individual stocks.
I am unable to figure out what you are trying to do. Pls elaborate.
Hi for the posb invest saver it is states in the faq that no partial redemptiom of shares are allowed – which means that if you have been buying shares from there from ten years and then you want to withdraw part of it to use, you cant. Isn’t this a great disadvantage especially if the prices of the shares have grown substantially in that ten years? What are your thoughts on this ?
Yes Ken, POSB only allows full redemption of shares. Alternatively, you can choose POEMS Share Builder Plan, which allows you to do partial redemption.
Hi Alvin,
I throughly enjoyed reading this post. I have a question about using dca to buy sti etf, and how it applies in the permanent portfolio.
I understand the portfolio is 25% stocks. Assuming a budget of $12,000, and Assuming I deposit $500 a month using the Philips share builders plan. And have $3000 each in bonds cash and gold. How to I rebalanced my portfolio then. Wouldn’t my portfolio be less stocks at the start, and then stock heavy subsequently? How do I incorporate the concept of dollar cost averaging into my PP
Regards,
Ben
You should separate DCA from Permanent Portfolio.
PP should be constructed all at once, and not having the stocks component built up through DCA. This will compromise the effect of PP and its returns.
Thanks for the wonderful write-up! I’ve been reading through your articles, esp on the setup of PP.
Just a question: For new investors with minimal capital, DCA through RSP seems more viable. Is there a way to incorporate DCA so that we can build up the PP over 1-2 years timeframe?
Hi Reg, I can think of two ways to do it
1) Start PP now and sock your monthly savings into the cash component of PP. As the cash grows to 35% of the portfolio, rebalance it by buying stocks, bonds, and gold.
2) Start a RSP on STI ETF. Once you have accumulate enough, sell some STI ETF and buy bonds and gold.