How does investing in STI ETF work? What is the difference between SPDR STI ETF (ES3) & NIKKO AM STI ETF (G3B)? Also, for a beginner, would a lump sum investment or monthly investment be more suitable? - Seedly
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Kenny

Asked on 11 Apr 2020

How does investing in STI ETF work? What is the difference between SPDR STI ETF (ES3) & NIKKO AM STI ETF (G3B)? Also, for a beginner, would a lump sum investment or monthly investment be more suitable?

Also, i understand that you can invest as low as $100

As such, what would be a good amount to invest so as to see good returns? Thanks.

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Gordon Lim
Gordon Lim
Level 6. Master
Answered on 23 Jul 2020

Hi. Just want to contribute my 2 cents. I'm a beginner too and I went with dollar cost averaging(DCA). Note: If you dollar cost average, you need to set up a Regular Savings Plan(RSP). If you were to just buy conventionally say through DBS Vickers or whatnot the fees per transaction (min $25) will surely eat into your returns. I personally have a RSP set up wtih POSB's Invest Saver to invest in the STI ETF.Going wtih DCA allowed me to start investing with only $100. For a beginner this felt like a lot of money. But as the months went by, I have up-ed my financial literacy and I'm now investing $500 a month. That being said, I went with Nikko AM STI ETF because SDPR STI ETF wasn't an option with POSB Invest Saver. Also, I already have a bank account with DBS so setting up the RSP was smooth. Yet, I wouldn't recommend POSB Invest Saver now that their cashback promotion on sales charge has ended. I'll switch to FSMOne in the future which also has an RSP, trades SDPR STI ETF and lower fees in the long run.

As for the differences between Nikko AM and SDPR STI ETF (besides availability on different brokers) is 1) tracking error: how well it tracks the STI index 2) fund size Please refer to this seedly article for a well-detailed breakdown with summary https://blog.seedly.sg/spdr-sti-etf-vs-nikko-am-sti-etf/ (The 2 I mentioned is just those I remembered clearly)

Back to Lump Sum vs DCA. Here's the seedly article I read https://blog.seedly.sg/dollar-cost-averaging-vs-lump-sum-investing/ My takeaways are that if you lump sum, short-term volatility might cause you to back out and sell at a wrong time when you should be holding for the long term. Let's say you invest $1000 lump sum vs $100 every month for 10 months. In the first month, if there a 1% drop, you will see a paper loss of $10 with lump sum but only $1 with DCA. So it's also up to you whether you can stomach this paper loss and continue to hold (as a beginner). Starting with DCA acclimitizes you the market volatility (I can vouch for that). Also one of the mistakes in investing is trying to time the market. With lump sum, the stock price has to be higher than when you bought it to make a positive ROI. With DCA, you can see from the diagrams in the link above, that it helps you ride through the 'lows'. And an RSP enforces some self-discipline in holding - it literally becomes habitual and automatic.

Lastly, I think most people see returns as a % of your amount invested so just to clarify investing more does not give you more returns for ur single dollar. How much you should invest should depend on where you are in your financial journey. Do you already have an emergency fund of 6 months of income? How much cash flow do you have. I watched this https://www.youtube.com/watch?v=XCcmzsdsB9A which recommends a percentage of your monthly cash flow to invest. I think its worth checking out.

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Yang Teng
Yang Teng
Top Contributor

Top Contributor (Aug)

Level 9. God of Wisdom
Answered on 12 Apr 2020

Imagine going to the grocery shop and looking at a shopping list to see how market prices are evolving as a whole economy. If you were to go Sheng Shiong now, chances are, things might be more expensive than before the virus outbreak. Investing in an index works on a similar concept. The STI consists of the 30 largest companies in Singapore and their performance can be a proxy for Singapore's economy's performance. If the economy is good, STI goes up, bad and it falls. Index investing is ideal for most people as it eliminates the hassle and risk of individual stock selection. Not only that, it can be cheaper as you do not have to directly buy shares from all 30 companies.

You can take a look at this article below by Seedly which compares the two ETFs. https://blog.seedly.sg/spdr-sti-etf-vs-nikko-am-sti-etf/

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Kenneth Lou
Kenneth Lou, Co-founder at Seedly
Level 9. God of Wisdom
Answered on 12 Apr 2020

Hey there Kenny, I believe our content team just published a piece on this yesterday :)

You can find it here: https://blog.seedly.sg/spdr-sti-etf-vs-nikko-am-sti-etf/

A Singaporean's Guide To STI ETF: SPDR STI ETF vs Nikko AM STI ETF Which Is Better?

TL;DR: The key differences between the two STI ETFs are in their:

  • fund size

  • expense ratio

  • tracking error

  • dividend distribution

Will leave you to read more in the blog article itself but primarily, for me personally I used to invest in the NIKKO AM STI ETF before pulling it out to focus on a global ETF instead through various robo advisors.

The growth potential of STI index just insnt there because many of them actually focus on the dividend income side of things, and largely banks/finance focused stocks eg DBS, OCBC, UOB.

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