Stocks or ETF

[cheongmanz]

For long term investment, is it better to...

1) Time the market and invest on stable blue chips for substantial dividend payout

or

2) Apply DCA on ETF

I'm talking about sg context

 

[numbers]

DCA on ETF.

unless u are very confident of your market timing skill

 

[cheongmanz]

DCA on ETF.

unless u are very confident of your market timing skill

I'm not 100% confident but at least through stocks, my estimate is that I can get at least 5% p.a via dividend.

 

[Mecisteus]

Statistics show majority will lose money trying to actively manage their money.

You need to try out yourself to see which camp you belong to.

If you keep losing money, then you need to change your approach. Don't continue to throw good money after bad.

 

[tangent314]

I'm not 100% confident but at least through stocks, my estimate is that I can get at least 5% p.a via dividend.

I've noticed the stocks that give good dividends tend to have less capital gains

 

[peterchan75]

Statistics show majority will lose money trying to actively manage their money.

You need to try out yourself to see which camp you belong to.

If you keep losing money, then you need to change your approach. Don't continue to throw good money after bad.

Penny stocks move from 10 cents to 20 cents in just a matter of days. That's a 100% gain mind you.
Very exciting wor!
But the majority move from 10 cents to 2 cents.

 

[Mecisteus]

Penny stocks move from 10 cents to 20 cents in just a matter of days. That's a 100% gain mind you.
Very exciting wor!
But the majority move from 10 cents to 2 cents.

Upside is unlimited but downside is limited to 100%.

 

[beefjerky]

Taking a local degree right now but after 3 years, ive come to realise im not as smart as the market, purely doing etf now with some leftover individual shares from the past =(

 

[fr33d0m]

Unless you are very good at selecting stocks, start with at most 20% of you total portfolio actively managed.

You will realise how good you are very soon and adjust your strategy.

 

[Toni90]

Study, buy and hold can beat the sti etf.

 

[crimsontactics]

All about risk and return.

No right answer.

Sent from . using GAGT

 

[Maeda_Toshiie]

I've noticed the stocks that give good dividends tend to have less capital gains

That's kind of expected. Setting aside REITs, companies generally give out dividends because they don't have better opportunities to reinvest in themselves in order increase revenue.

 

[Shiny Things]

For long term investment, is it better to...

1) Time the market and invest on stable blue chips for substantial dividend payout

or

2) Apply DCA on ETF

I'm talking about sg context

You've sort of got two questions conflated into one here.

Option 1 is "time the market, and buy a narrow basket of stocks"
Option 2 is "don't time the market, and buy a broad basket of stocks"

Those are two different things, though they reflect two main priorities:

Option 1 is "I think I can trade better than the market as a whole"
Option 2 is "I don't think I can trade better than the market as a whole, so I'll be satisfied with an average return".

The problem is that option 1 is sort of self-defeating! Think about it like this:

1) Before fees, the average investor in option 1 is going to earn the same as the average investor in option 2.

Why is it so?

The total money invested in the market is going to earn the average market return, and the money invested in option 2 is going to earn that same return. So the money invested in option 1 is, on average, going to earn that same return. Before fees.

2) After fees, the average investor in option 1 is going to earn less than the average investor in option 2.

Why is it so?

Actively managed funds, and active individual traders, tend to trade more often: so they run up higher transaction costs and more spread costs. If they have the same average return before fees, and option 1 has higher fees, then after fees, option 1 will have less money.

3) You are probably an average investor - in fact, probably below-average.

Why is it so?

The reason banks' trading desks and market-making companies are so fabulously profitable is that most of their retail customers systematically lose money. Active trading, especially for individual traders, is basically a firehose of cash from your pocket to the banks' trading desks.

So option 1 doesn't just start with the same returns before fees - it starts with lower returns before fees, and has higher fees.

4) Therefore, you will probably end up with less money in option 1 than in option 2.

5) So why not just skip straight to option 2 and save yourself some time?

 

[cheongmanz]

Before fees, the average investor in option 1 is going to earn the same as the average investor in option 2.

Why is it so?

The total money invested in the market is going to earn the average market return, and the money invested in option 2 is going to earn that same return. So the money invested in option 1 is, on average, going to earn that same return. Before fees.

2) After fees, the average investor in option 1 is going to earn less than the average investor in option 2.

Why is it so?

Actively managed funds, and active individual traders, tend to trade more often: so they run up higher transaction costs and more spread costs. If they have the same average return before fees, and option 1 has higher fees, then after fees, option 1 will have less money.

For option 1, my intention is to trade a few times when timing the market and let dividend flow into my account. So it should be only a few transaction fees

For option 2, I believe by applying DCA on ETF, I am trading consistently say monthly irregardless whether the price goes up or down. It this case, I am also paying transaction fees every month, isn't it?

In this case, how is option 2 a better decision? I am curious to know.

 

[cheongmanz]

I've noticed the stocks that give good dividends tend to have less capital gains

My intention is to leverage on dividend. Capital gain to me is a bonus. Besides if I time the market, most stocks should be low in price.

 

[tangent314]

if I time the market

***sigh***

 

[swordsly]

For option 1, my intention is to trade a few times when timing the market and let dividend flow into my account. So it should be only a few transaction fees

For option 2, I believe by applying DCA on ETF, I am trading consistently say monthly irregardless whether the price goes up or down. It this case, I am also paying transaction fees every month, isn't it?

In this case, how is option 2 a better decision? I am curious to know.

What you say is only valid if in option 1, you only buy 1 counter.
But you would know better than to put your eggs into just 1 counter.

When you buy the ETF, you have effectively bought multiple counters all for 1 trade.
If you were to buy N of the holdings in the ETF, that would already be N trades.
So here, you would already be paying more (unless like I said, you only buy 1 counter).

DCA doesn't always mean you should do it monthly even though that's kinda like a default. So long you regularly buy regardless of market conditions, you would be doing DCA as well (overall effectiveness may vary).

 

[cheongmanz]

What you say is only valid if in option 1, you only buy 1 counter.
But you would know better than to put your eggs into just 1 counter.

When you buy the ETF, you have effectively bought multiple counters all for 1 trade.
If you were to buy N of the holdings in the ETF, that would already be N trades.
So here, you would already be paying more (unless like I said, you only buy 1 counter).

DCA doesn't always mean you should do it monthly even though that's kinda like a default. So long you regularly buy regardless of market conditions, you would be doing DCA as well (overall effectiveness may vary).

Yes I understand that it is not advisable to put all eggs in one basket. ETF is also the safer approach when applying DCA. But something that holds me back on ETF is the management fee (I presume is monthly) and accumulated transaction fees.

 

[JetStorm]

Yes I understand that it is not advisable to put all eggs in one basket. ETF is also the safer approach when applying DCA. But something that holds me back on ETF is the management fee (I presume is monthly) and accumulated transaction fees.

ETF management is already low. As Swordsly already mentioned above, if you buy all the stocks seperately in the ETF, the fees will definetely be more than the ETF alone. Many pros and cons between individual stocks vs an etf. Etf have minimal risk in the event one of the individual stocks goes bankrupt.

Etf also have lesser earning potential compared to the returns on an individual stocks.

Ultimately see which side u are more concerned with amd your risk appetite.

If risk is of minimal concern, you can even try the dogs and puppy strategy.

Sent from Samsung SM-G950F using GAGT

 

[swordsly]

Yes I understand that it is not advisable to put all eggs in one basket. ETF is also the safer approach when applying DCA. But something that holds me back on ETF is the management fee (I presume is monthly) and accumulated transaction fees.

And thus you look for ETFs with low management fees and expense ratio.
The management fees are also automatically deducted from the entire NAV/cash pool I think (I hope I didn't get my understanding wrong). It isn't deducted from individual stockholders.

And again, you don't have to do it monthly. Or rather, you should run your simulation to see how much transaction fees are you really going to chalk up. What it is over your potential time-weighted returns.

Or or or! You can attempt to do both. Have 2 portfolios, one active and one DCA. That way, you can see just how good you are at timing the market and decide if you should continue. In the event you dont, you still have your ETF portfolio (kinda like keeping bonds in our investment portfolio) as some form of counterweight. Do bear in mind your returns will not be as awesome as option 1 (in its ideal case) and option 2.

Disclaimer: I'm a newb and still learning so the above is just a suggestion. I'm personally trying this as well, having a small portion being actively managed while the rest are in my POSB Invest Saver (and soon IWDA once I save up enough).