Investing in the stock market is often deemed as risky and difficult by many. Here, I would show how a simple strategy would perform for a someone who does not know much about the stock market and is very unlucky when it comes to investing.
Firstly, for someone without much knowledge in investing, index investing is ideal because it gives good diversification with just one stock. Also, rather than starting with a large amount of money, I personally believe it is easier to invest small amounts of money regularly over time.
The strategy is simply to buy and hold STI (via ETF ES3) every month with some small amount, and reinvest all dividends collected.
Assuming one starts to invest SGD 500 monthly on only the index STI (via ETF ES3) for five years from January 2010 till December 2014. How much would that person have at the end of December 2014? I further assume that person is extremely unlucky in the sense that every month, he/she would always buy the ETF at the highest price of the month.
Even with such unlucky circumstances, that person would, on 31 December 2014, have a total portfolio value worth SGD 33,386.80. That unlucky person would have earned SGD 3,386.80 from the total sum of SGD 30,000 saved over the five years. This is equivalent to generating a 4.3% annual return on the money invested during the five-year period.
Of course, there are no guarantees that this “unlucky” person can achieve the same returns for the next five years, but would you rather entrust your money to so-called “expert” financial advisers who charge you extremely high fees for also non-guaranteed results? Or would you prefer to lock your money away in fixed deposits with extremely low returns?
Life is an adventure, live it yourself!
Is this strategy really possible? Yes!
The combination of these two allows us to start investing easily with a small amount of money and still enjoy low trading fees.
There are no more excuses left. Start investing today!