In recent years, investors have become more aware of investing in low-cost passive Exchange Traded Funds that can be bought and sold like stocks.
The upside to these ETFs is they tend to have low management fees.
In the case of the Straits Times Index (STI) ETF which gives you exposure to the Singapore Market, they both have management fees of just 0.30%.
However I don’t think it’s a great investment and here’s why.
Singapore Market and Hence STI ETF is Not Great
The STI ETF tracks the Singapore stock market which has been in doldrums for the last decade.
To give you an idea, when I started investing in 2010, the STI was hovering around 3,200… more than 10 years later it’s still hovering at 3,200.
To give you some perspective:
US Market: +16.5% per annum
Hong Kong Market: +9.5% per annum
Singapore Market: +5.3% per annum
The Challenges with the Singapore Market
The intrinsic challenge with the STI ETFs is that they track a very small group of companies that have faced an onslaught of challenges in the last decade.
Examples include SPH… which had its entire business model disrupted by new forms of digital advertising.
Telcos like Starhub (later removed) and Singtel which has faced intense competition both in Singapore and globally.
Even the three big banks (UOB, OCBC and DBS) have not been spared because of record low interest rates that has had an impact on how much they can make from their loan book.
Singapore Market Is Simply Too Small
The fundamental problem is that the STI covers a very small section of the economy with most of the exposure coming from Singapore itself.
It doesn’t help that many homegrown companies like Razer and Sea (formerly known as Garena) have opted to list overseas instead of Singapore.
Not all Passive Investing Is Made Equal
When you invest into a passive ETF that mimics the S & P 500 (US), you get exposure to 500 companies which represent some of the best businesses in the world like Microsoft, Facebook, Apple and Google.
That give you a lot more diversification than the 30 companies on the SGX which are heavily weighted towards traditional industries like finance and property development.
Furthermore these companies are often industry leaders will long growth runways both locally and overseas.
The key takeaway is that not all passive funds are made equal.
The Right Way To Invest in ETFs
Constructing a portfolio of low cost passive funds that can get you diversified global exposure can be challenging for Singaporean investors as most of the solutions are mainly available to US investors.
Because of that, I’ve created the Bulletproof Passive Investing Course.
The course will teach you how to deal with these challenges so you can construct a portfolio of low-cost ETFs that give you overseas exposure at less than 0.25% management fees.
We are offering a Chinese New Year Promotion and the course is priced at $67 ($30 off the normal price of $97).
This course will also highlight how to:
- Eliminate the most common ways investors lose money such as market timing and expensive fees
- How to find out your asset allocation based on your personal situation
- A framework that will allow you to reap the benefits of a diversified stock portfolio at the lowest cost
- The differences between actively managed funds and passive index fund
- How to get exposure to the Singapore Market cheaply
- The best ETFs to get global diversified exposure at low cost (<0.25%)
- The differences between Dollar Cost Averaging & Lump Sum Investing
- Explain why long-term stock market returns are deceiving and how you can fight volatility and fear with hard facts
