Tan Kin Lian's Blog: Invest in an indexed fund

Saturday, July 19, 2008

Invest in an indexed fund

Hi Mr. Tan,

1) I read in many reviews that index funds such as the STI usually outperforms managed funds on average. Is this true and would you advise me investing in the STI at this time and who do you advise I manage and adjust on a regular basis?

2) I am looking for a good financial advisor and institution. So far, I have talked to a few financial planners but none has given me the confidence that I will really get my returns over the long term. I am at a loss on how to ensure I have a robust portfolio and where to seek reliable and effective help from. Do you have any specific suggestions on how I can go about it myself or seek advise from?

3) I cannot assess the link in your blog regarding "Financial Planning tips", can you send it to me or have any books i can self educate myself with?

REPLY
I advise my readers to invest in an indexed fund for 10 years or longer. A suitable index fund is the STI ETF. As the index is now 25% below the peak, it is at a good level for investing. Even if the market goes down from here, it will recover in6 to 12 months time (just my opinion).

You can buy the STI ETF through your stock broker. It is quoted on the stock exchange. Read this FAQ:
http://tankinlian.com/faq/savings.html

If you need a financial planner, who is willing to give advice for a fee, you can contact X (details deleted).

The link for Tips on Financial Planning in my blog is working. It leads you to this webpage:
www.tankinlian.com/faq

4 comments:

David said...: A veteran banker described the current subprime and financial crisis in US banks and investment firms as the worst he has seen in his 50 years in banking. What's more, these banks and firms do not know if the worst is over or even more losses to come. There is also great uncertainty in the US economy (recession), inflation and interest rates, oil prices and regional politics. So the next few months may be exciting times in the stock market for some bargains for long term investment. It may pay to wait. This happens once in a long while. The last time was in 1998 (asian financial crisis and also political turmoil in Thailand, Malaysia, Indonesia) and STI was at it's lowest.; July 19, 2008 11:10 AM
Wayne said...: My personal take on STI ETF (and all ETFs in general) is that ETFs' investing mandate is to be 100% invested. In an upward market, this will be beneficial to investors, but when the market comes down, the damage is larger. A mutual fund can hold cash in a downturn, therefore preserving the value. I have used my own portfolio to benchmark against an ETF and it has been proven so. I suggest a rebalancing to be done once a year. At this current juncture, it may make sense
to invest in STI ETF as the STI has gone down a fair bit.

If the choice is to go for STI ETF, I suggest "dripping in new money" a.k.a dollar-cost averaging. I have done some studies, a $100/mth "drip" into STI over past 10 years would have returned 5.5%p.a IRR. Captial invested:$12000; portfoio worth now:$20400
Reference: http://www.waynekoh.com/2008/07/more-on-indices-part-2.html
http://www.waynekoh.com/2008/06/sti.html

On a second note, there are several funds that have outperformed the returns by STI. The best fund manager is Aberdeen, returning 17%p.a vs 10.9%p.a (STI) for past 10 years.

I have created two tables that can be used to estimated portfolio value based on certain %p.a returns, mthly investment an timeframe.
See http://www.waynekoh.com/2008/07/drip-in-new-money-part-3.html
http://www.waynekoh.com/2008/07/drip-in-new-money-part-4.html

Another objective of "drip-in-new-money-part-3" is to enable consumers to cross check against ILP's 5% & 9% projections. As we already know, it is always better to buy-term-invest-the-rest.

My investment approach:
Invest long term + apply asset allocation (diversify through sector/geographical allocation such as core-satellite approach) + "drip in money" along the way to reduce market timing risk.
Most importantly, discipline by adopting regular savings habit FIRST!

Happy investing!; July 19, 2008 12:53 PM
zhummmeng said...: If you are looking for a certified financial planner(CFP) you can seek help at http;//www.fpas.org.sg
They may direct you to an appropriate
organisation and planner.
All the best.; July 19, 2008 6:32 PM
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