Investing in the stock market for me has always been something I wanted to do ever since I was 17. Being young and ambitious (and definitely impatient), the word “investing” seemed like a quick way to get rich. I didn’t know what it really meant to invest. The only thing that I knew was to use my existing money to keep it somewhere else other than the bank to generate better returns. This led me to get an Investment Linked Policy (ILP) with a relative of mine which I am trying hard to convince myself that it wasn’t a wrong decision up till today. (Yes, story for another day still.)
9 years later, when I was turning 26, I finally had some savings after being in the workforce for 3 years. Hmm, I think to myself again. I have more than enough to keep me going for some time even if I should be unemployed.
What do I do with the rest of the additional money?
It came upon me again that the stock market could be an option. I have friends who do it anyway, why not me? But I was fresh from the oven. Just that I didn’t smell as good as bread. :p
Alright, I’ll do some Googling. Search for “What stocks to buy for beginners.”
Wow okay, it seems like everyone is recommending the STI ETF. For a small capital, I am able to diversify to my money with many blue chip stocks! Even Warren Buffett himself is an advocate to low-cost index funds! Great! But what about risk? When should I buy it? Is it too expensive now?
More Googling. “How to mitigate risk in stock market.”
Oh cool! Dollar-cost averaging?
I’ve been doing it with my ILP! Alright, I’m familiar with this strategy of investing.
I’ll try this out. “How to buy STI ETF with DCA.”
OK, seems like it’s a common thing. OCBC, POSB and PhillipCapital POEMS, etc. all allow me to do this, but with different charges and conditions.
Since I have an OCBC 360 savings account (which had way better interest rates then before all the revisions), and with some comparison making among the different platforms, I decided to go ahead with the Blue Chip Investment Plan (BCIP).
From the two STI ETFs available in the stock market (namely SPDR and Nikko AM), the only one provided in the BCIP was the Nikko AM STI ETF. Every month, I credited S$600 into the BCIP which would be automatically deducted from my savings account.
So there! I’m an investor in the stock market!!! Or so I think I am… Haha.
1 year and 3 months later, I received two letters of dividends and a paper gain of 8.16% from my original capital of roughly $9000.
I did not have a CDP account. I did not have a trading account. It is actually that easy to be invested!
Now, although I did make a profit, there are a few key takeaways to this experience.
1) Timing is quintessential, even for DCA.
Call it beginner’s luck, it just so happened that I started when the index was below S$3. This is very important because my overall average price was pulled down to about S$3.04 despite trading at (significantly) higher prices towards the end. Things would have been different if I started at the top of the index.
2) The STI ETF is ideal for beginners.
Google triumphs once again. STI ETF is a good counter to buy for a beginner in investing. It is perfect for lazy people because you don’t really need to know anything about stocks, and you get access to really good, quality stocks with a small capital.
3) Dollar-cost averaging makes you emotionless.
Dollar-cost averaging is a good strategy to detach yourself emotionally from the market. Throughout the time I was invested, I found myself occasionally checking out the price of the ETF. However, whether I felt sad or happy that day, it wasn’t going to affect when the deduction of the S$600 was gonna be made, as long as I did not make any changes to my BCIP. That enforced discipline. Sadly in reality, many people lack this discipline because it’s normal to be human, me included.
4) Returns for Dollar-cost averaging can’t be awesome.
Well this is a no-brainer… it has the word “average”! If say I placed a one time lump sum capital of S$9000 in the beginning at S$2.83 per share, by now, my paper gain would have increased from 8.16% to a whooping 28.9% at a recent price of S$3.34, excluding dividend return. Similarly, the inverse might also be true. You never know when a stock might plunge and you could potentially lose a big chunk of your initial capital. Since DCA is a way to eliminate risk to a certain extend, you can’t expect to earn millions overnight with this investing method. Ultimately, it boils down to your risk appetite, and if DCA is able to mitigate this for you, it may be the right choice.
5) This investment experience isn’t long enough.
Some people emphasize that DCA is a long term approach, and when I say long term, it probably has to go through at least an entire economy cycle to really see the benefits of it. That being said, there are simulations online that help us see how effective it is to apply STI ETF over a significantly long period of time.
Some information that I dug out during my research which hopefully will be as useful to you as they were to me:
Overall, I would say that this first experience of mine is valuable. Apart from the 5 points that I’ve mentioned above, I have actually learnt a lot more. Simple as it may be, it propelled my interest in investing further. Taking the first step is always the hardest because you are stepping into a new world of uncertainty.
If you are wondering which stock to get for your very first investment in the stock market, I hope this blog post helped you. 🙂
Thanks for reading!
Miss Niao xoxo