Is ES3 supposedly 8.4% annualised returns a lie?

[bobbytkc]

the easiest way to explain why your friend is making a loss is because of the following factors:
-2 times per year isn't effective DCA.
By casual observation,
2011- Jan and June's prices are the highest that year (BAD)
2012- Jan and June prices are lowest that year (GOOD)
2013- Jan is not so bad but June is costly (BAD)
2014- Jan prices is low and June is somewhere on the high side (AVERAGE)
2015- Jan and June were poor months to invest in (BAD)

You have 3 bad, 1 good and 1 average entries...

-the es3 is moving sideways for the last 5 years as compared to the more popular S&P 500 SPDR ETF.

ES3: https://sg.finance.yahoo.com/echarts?s=ES3.SI#symbol=ES3.SI;range=my

SPDR S&P500: https://sg.finance.yahoo.com/echarts?s=SPY#symbol=SPY;range=my

-The point of time in which you withdraw your DCA investment is also critical. Should you do that during a great recession, you will likely to lose less than the enterprising investors. On the other hand, DCA usually provides you less returns than an enterprising, active investor.

Safe to say, this is a bad part of the year to calculate your capital gains/losses.

TL; DR
1) increase frequency of DCA to 4 times a year
2) STI was moving side ways for the last 5 years.
3) DCA is a really long term investment strategy. 5 years might be a little short..

Not the right way to decide whether it is good or bad. It is not important to compare the performance with the rest of the year. You should be comparing the performance year over year, January of one year to January of the next year. That is the important number.

 

[lbs]

Not the right way to decide whether it is good or bad. It is not important to compare the performance with the rest of the year. You should be comparing the performance year over year, January of one year to January of the next year. That is the important number.

not if the ETF is not moving sideways like STI; esp not if over a long period of time

 

[SpeedingBullet]

I did read somewhere about a modified DCA approach wherein your DCA amount doubles with every 10% drop in the market. The person didn't backtest the numbers, I wonder how it'll work out in real life.

But yeah S&P 500 outperforms STI most of the time.

 

[Layers]

i had always been thinking abt DCA when i was investing in unit trust.

if u keep buying in interval, in general the market is going up most of the time, so you are buying at a higher price as the months/years go by.

one crisis or correction like now will wipe off the investment value.

and being DCA, it seem to me a tactic to buy and hold forever.
same risk as i mention above.

won't it be more beneficial to just buy at low? get dividend when the price is high. sell when say the market reach the peak. ETF shld be easier to estimate, say 3800.

Therefore DCA seem wrong to me if it is to buy and hold forever.
how long can u hold for the STI to reach over 4000? during this time, the market would have go through a no. of cycle of correction.

simi annually doesn't seem a good interval. if you bought in may before the correction and the next purchases is in nov. you might miss the low which is in oct and dec

 

[Layers]

the easiest way to explain why your friend is making a loss is because of the following factors:
-2 times per year isn't effective DCA.
By casual observation,
2011- Jan and June's prices are the highest that year (BAD)
2012- Jan and June prices are lowest that year (GOOD)
2013- Jan is not so bad but June is costly (BAD)
2014- Jan prices is low and June is somewhere on the high side (AVERAGE)
2015- Jan and June were poor months to invest in (BAD)

You have 3 bad, 1 good and 1 average entries...

-the es3 is moving sideways for the last 5 years as compared to the more popular S&P 500 SPDR ETF.

ES3: https://sg.finance.yahoo.com/echarts?s=ES3.SI#symbol=ES3.SI;range=my

SPDR S&P500: https://sg.finance.yahoo.com/echarts?s=SPY#symbol=SPY;range=my

-The point of time in which you withdraw your DCA investment is also critical. Should you do that during a great recession, you will likely to lose less than the enterprising investors. On the other hand, DCA usually provides you less returns than an enterprising, active investor.

Safe to say, this is a bad part of the year to calculate your capital gains/losses.

TL; DR
1) increase frequency of DCA to 4 times a year
2) STI was moving side ways for the last 5 years.
3) DCA is a really long term investment strategy. 5 years might be a little short..

my point exactly

what do u mean sideway?

 

[Layers]

Not the right way to decide whether it is good or bad. It is not important to compare the performance with the rest of the year. You should be comparing the performance year over year, January of one year to January of the next year. That is the important number.

it is importance because TS is buying buy DCA. isn't it? if TS bought in jan, of cos compare it to jan next yr. but DCA u purchase a no. of times within a year

 

[lbs]

the concept of DCA (i still think it is the best strategy ever) is appealing to, what Benjamin Graham described as, defensive investors, and with a mindset of, what Jason Zweig described, "I don't know how the stock market is performing, and I don't care."

In general, defensive investors should expect to accept a modest return with less risk and bother.

With DCA, you invest a fix amount at a fix interval no matter how the market is doing. Hindsight is 6/6. I will add to your point that with a bearish market, you get more units per investment.

It is quite difficult to know when is a stock/ETF price is low. My personal opinion is I will always look back 3 years and not 52 weeks. You can have a bullish 52 weeks.

The idea of buy and hold is only dangerous if you have a single entry point at an extremely bullish period (from the charts, we are at the peak).

ETF mitigates the risk of companies going bust (which is the problem with blindly buying and holding imo).

i had always been thinking abt DCA when i was investing in unit trust.

if u keep buying in interval, in general the market is going up most of the time, so you are buying at a higher price as the months/years go by.

one crisis or correction like now will wipe off the investment value.

and being DCA, it seem to me a tactic to buy and hold forever.
same risk as i mention above.

won't it be more beneficial to just buy at low? get dividend when the price is high. sell when say the market reach the peak. ETF shld be easier to estimate, say 3800.

Therefore DCA seem wrong to me if it is to buy and hold forever.
how long can u hold for the STI to reach over 4000? during this time, the market would have go through a no. of cycle of correction.

simi annually doesn't seem a good interval. if you bought in may before the correction and the next purchases is in nov. you might miss the low which is in oct and dec

 

[Genosis]

(i) Your friend applied DCA, which is good, but did not reinvest dividends. Dividends is very important in SGX because it is tax free. You need to use all your dividends to buy more stocks as you get them.

This is an important point.

Yup, reinvesting the dividends consistently over many years is crucial.

 

[lbs]

my point exactly

what do u mean sideway?

neither bearish nor bullish... trading along a channel in other words.

 

[Genosis]

I did read somewhere about a modified DCA approach wherein your DCA amount doubles with every 10% drop in the market.

This process needs to be automated bcos a normal human being will be too fearful to average down double after a 10% drop.

 

[Genosis]

You mean:
Past results (with Mr Lee Kuan Yew) are no guarantee of future performance (without Mr Lee Kuan Yew)?

Absolutely. LKY was leading a young hungry nation 50 years ago.

People ask me what I think Singapore will look like in SG100. I told them I am only sure of one thing. Singapore will be full of old people!

The scary part is, not only us but other Asian nations are aging fast too. Basically, humanity is aging.

 

[Bedokian]

Investment time horizon should be at least 10 years, which is also the duration of calculating returns.

 

[SpeedingBullet]

If you think Singapore will stagnate from here on out.

Maybe u can mimic a regular Japanese ETF investor from 1990-2015, see how well he performs in a "lost decade" in Yen terms.

 

[NewInvestor]

If you think Singapore will stagnate from here on out.

Maybe u can mimic a regular Japanese ETF investor from 1990-2015, see how well he performs in a "lost decade" in Yen terms.

The often given reason for Jpn stagnation is that they do not encourage foreign immigration and hence have a reducing population. And also, hopeless politicians.

 

[Yorixz]

I believe the 8.4% annualized returns is a fluke. It is based on many asssumptions. Maybe to buy at $2.50 instead of $2.90 or $3.30 within the past year, then can really achieve 8.4%

 

[limster]

Only buying STI ETF every month is not "asset allocation."

Myself, I have one rule about STI ETF. Buy more when it is below $3.00, buy less when it is more than $3.00 . Actually, my rule is don't buy any >$3.00, if I can find better choices.

If you keep your average buying price of STI ETF $3.00, you are pretty likely to make a positive return in the long run.

Dividend warriors instinctively avoid STI ETF when it is above $3.00. Look at the terrible dividend yields of STI ETF in the earlier years.
2014: 3.03%
2013: 2.93%
2012: 3.28%
2011: 2.76%

 

[Layers]

Only buying STI ETF every month is not "asset allocation."

Myself, I have one rule about STI ETF. Buy more when it is below $3.00, buy less when it is more than $3.00 . Actually, my rule is don't buy any >$3.00, if I can find better choices.

If you keep your average buying price of STI ETF $3.00, you are pretty likely to make a positive return in the long run.

Dividend warriors instinctively avoid STI ETF when it is above $3.00. Look at the terrible dividend yields of STI ETF in the earlier years.
2014: 3.03%
2013: 2.93%
2012: 3.28%
2011: 2.76%

the book mean i can buy any stock at any price and make a profit if i have to right assets allocation? doesnt sound right ...

 

[peterchan75]

the book mean i can buy any stock at any price and make a profit if i have to right assets allocation? doesnt sound right ...

I wish it's that simple.
Should have put all my money in STI ETF when is was below $2. Fear !

 

[limster]

I wish it's that simple.
Should have put all my money in STI ETF when is was below $2. Fear !

I actually have less fear buying STI ETF below $2, when STI ETF is above $3, I actually have more fear because it got more to lose.

I have checked my STI ETF purchase records. Since 2008, I have only bought STI ETF once when it was above $3.00. All the other purchases, under $3.

as for the other reply, I am surprised that there are investors who have not heard of asset allocation.

 

[Shiny Things]

I need some help in calculating the STI ETF (ES3) returns to the above figure. I am intending to invest in ES3 over the long term and no matter how I count, I can't reach the same high figure.

The "8%" or "7%" or whatever historical returns number for ES3 is an average, not a guarantee. Over long periods - decades or so - the returns tend to converge to high single digits - but over shorter periods, the returns are a lot more volatile.

As a matter of fact, he has made a loss of $337 (and more if you include the brokerage fees) over the last 5 years. So how does one calculate the high returns of ES3? Is it still viable for long term investment?

The "8.4%" number is from 2004 to 2014. The flatline number is from 2011 to 2015. There's the reason the two numbers are different - because they're over different time periods.