# Confused by a Seedly article on STI ETF and its returns. Please help?

Hi, I was reading this Seedly article: https://blog.seedly.sg/dollar-cost-average-dca-sti-etf-returns/. Based on their calculations: Total gain = \$683 + \$914 = \$1,597 over 8 years. I.e. A return of 16.92% on an absolute basis (after 8 years). Does this mean that the annual return is only 16.92% / 8 = 2.12%? Isn't this low, since SSB's rates for Dec 18 can already beat this within the 2nd year? Please enlighten me on this. Noticed that there were many comments asking this too, but unanswered.

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• Yixiong Chang
Level 5. Genius
Answered on 17 Nov 2018

To have a right perspective of the returns, you'll actually have to use a financial calculator to find out the Internal rate of return based on the cashflow series so as to better compare. Why becos each month's \$100 gets invested for different period of time, only the first \$100 remains invested for the full 8years. The last \$100 gets invested only for 1 year. Similarly, the dividend u get for the front years is base only on the amount invested then (which is lower). If u made the comparison (calculate the return) against 8years of total money invested, it is definitely not a fair way.

To illustrate the difference in simple, STI dividend yield fluctuate greatly, but an min of 3% in the last 10years is fair (as high as 6.11% in 2016). If u have invested \$9600 from first year, u have gotten \$288 dividend at just end of first year. After 8 years the total dividend is at least \$2,300+. Excluding capital return is any. But this is not the case, as a DCA method is used. Using a simple calculation using just the end value without adjustments is flawed.

Another thing to note is that the writer had a 1% sales charge for the RSP. So this also drags down the overall performance.

I believe Dividends are also not reinvested in his calculation.

The capital return will also need to take into perspective. Depends on the period invested and 'exited'. The overall values can be significantly different, as the 'exit' price is a key factor to calculate.

The range of returns cannot be assigned to ETFs. ETFs are just a investment vehicle. If the ETF is used to buy a bunch of singapore government bonds, u can expect returns of that sg government bond 2%+. If it invests in small cap stocks, a return of 8-10%+ is possbile (or a loss). So it depends on what markets the ETF is invested in.

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• Lok Yang Teng
Thanks! How would you calculate ROI on your investment in ETFs (with dividends reinvested)?
17 Nov 2018
• Question Poster
Thanks so much for this! Understand much clearer now. Curious about how you would calculate ROI with dividends invested too, like the comment above :) Also, do you recommend reinvesting dividends?
22 Nov 2018
• Lok Yang Teng
Level 6. Master
Updated on 17 Nov 2018

ETFs don’t 'really' generate high returns. That’s why article also says “It is designed for passive investors who are just getting started.” Edit: Companies in the ETF are blue chip stocks, whilst stable growth potential is limited.