#FinancialFriday - If not the STI ETF, then What?

Updated: Sep 28

Two days ago, I published an article about how the STI ETF is not suitable as a beginner investment. They might be convenient to buy into, but convenience does not solve its inherent problems.

People start investing because they want to grow their wealth stably into the future. While the STI invests in a market you are familiar with - Singapore's - its 30-company nature is not particularly reassuring.

  1. Poor diversification means a minor dip in the financial industry can cause a major blowback to your capital.

  2. A 30-company basket means that any change to one company can cause waves (compared to the ripples if we're looking at a 500-company basket).

  3. A 100% equity nature means that your capital is not guaranteed. If the value of the fund drops, so does your money.

And if you are willing to buy something volatile and not even have non-guaranteed returns, why not invest somewhere where you can get guaranteed returns i.e. with me?

In any case, you might now ask yourself, "So what else could I consider?"

Well, everyone has their favourites when it comes to investing. Some people trade, some deal in Forex and others value invest. Me, I like funds. They do not require highly active monitoring and there are plenty of markets you can explore. There are two broad categories we can look at - efficient markets and inefficient market investing.

Efficient Markets

Consider investing in indexes or exchange-traded funds (ETFs).

The average expense ratio for ETF investing is between 0.4 – 0.7% a year, not inclusive of any trades you may make.

Indexes in efficient markets such as the United States typically allow you to enter into popular stocks such as Facebook and Apple for a cheap price, while having lowered risk across many other companies. Such ETFs are also available on most securities accounts such as iFast (which I do offer).

Inefficient Markets

Emerging markets (EMs) consist of countries like China and India, and for them you can consider unit trusts or mutual funds (my specialty).

Yes, funds are tagged to higher fees but the majority of EM funds outperform their market counterparts vastly. Indices such as Modern Index Strategy Indexes (MSCI) have shown that EMs outperform global markets across long periods of time, so you'll likely get the highest return for the highest risk. And if you're the adventurous type and interested in branching into less familiar ground for a higher probability of much higher returns, you can drop me a PM as well.

Before you invest...

One thing I’ve learnt from doing tons of data analysis over the last two years is that fees are part of your risk profile.

You should never take on more fees unless you are looking to make a lot more money. It's the same as paying for quality goods. If you want something better, and can afford that something better, you can expect to pay more for it.

But if you've done your due diligence in selecting your funds and markets, you can also expect to enjoy good returns.

Money Maverick

#beginners #investing #stietf #investefficientmarket #investemergingmarket #riskmanagement #whereshouldIstart #sgfinance #nowyouknow #financialplanning #moneymaverick

Cover Image credit: Freddie Alequin

49 views0 comments