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Risk averse and putting money in STI ETF, REITs or stocks?

Sunday, August 23, 2015

Reader says...

Have been reading your blog for some time now and it has been a great source of financial/investment information. Thanks!

I have always been interested in investing but had only started recently after reading your blog and some other materials. 

However, I'm not sure if I'm heading in the right direction and would like your opinion.

I am kind of risk averse hence have decided to start of my investing journey with ETFs, specifically STI ETF. My plan is to buy a lot every month and slowly build up from there. 

But recently I have been thinking if it is worth it to use my spare cash to buy ETFs or should i venture into other products such as REITS or stock. 

One reason for thinking this way is because I feel that since I'm only 28 (okay maybe not really that young), I can afford to invest in more risky products.

Another reason is because per my understanding, ETFs can be bought using CPF monies so it might make more sense to use it to buy ETFs and use the cash to invest in REITs.

I'm considering the following options and would greatly appreciate if you could give some pointers if they are viable. 

I have prepared an initial capital of about $5-10k which I could use and would be able to set aside $500/mth. 

It's not alot but hope it's enough to get started. :)

Option 1: Continue with buying ETF every month and invest the initial capital of $5k in REITs. Read your blog on Aims AMP Reit, First Reit and Saizen Reit and am considering these.

Option 2: Buy ETF with CPF monies and concentrate my investment in REITs and shares (eg SPH, SingTel, etc). Probably 50% on each. Any other recommended apportionment is greatly welcomed.

Option 3: Since my capital is not alot, perhaps it is better to concentrate my investment in blue chips stock and hold.

My purpose in investing is actually for passive income so please share if you have any better alternatives.

Lastly, would like your thoughts on using Standard Chartered online banking platform for trading. 

I am currently using it because of the no min commission fee but am abit skeptical because it would mean that I am actually not holding on to those products I am buying. 

Tried searching your blog on this topic but was unable to find any.

Sorry for the lengthy email and thanks for your time.

AK says...

Welcome to my blog. :)

I never blog about SCB's brokerage because I don't use it. I use Lim&Tan and Kim Eng. 

Frankly, I don't think the savings on brokerage fees is a lot unless we trade often. 

I don't want to say this in my blog because I know I would probably be flamed for saying it. ;p

Buying into the local ETF is a good idea for people who do not have the time or inclination to do stock picking. 

It allows anyone to participate in the health of Singapore's economy.

Long term investors who invest regularly should do reasonably well.

However, we should be realistic and not think that the STI will do as well as it did in the last 20 years or so.

A bigger portion of future performance could come from dividends.

Investing in stocks and REITs require more active management of your portfolio. 

I do not know if this would outperform or underperform the STI ETF.

However, this should beat inflation by a comfortable margin.

How you ultimately apportion your resources is up to you. I won't make recommendations.

However, you must be very sure that your methods match your motivations as an investor. 

You must sleep well at night. 

Peace of mind is priceless. :)

Related posts:


apex property investment said...

Can you buy property at 28? 20 years horizon, leveraged at 5x... Can be a safe and lucrative investment.

AK71 said...

Hi Apex,

I wouldn't suggest that. It is a huge commitment and the concentration risk is simply too high. If he were to get it wrong, he is sunk with nothing to fall back on.

Anyway, if you read his email to me, he only has $5K to $10K to start with. So, direct property investments are probably not feasible.

Solace said...

I have doubts to using CPF to buy ETF, especially if the index is at current level. CPF gives 2.5% interest, so to use CPF, one must be sure the return can be bigger than the 2.5%. We are not at crisis situation yet where potential return can be huge.

If I think of myself as a investor starting out only recently, with only 5-10k of investment capital, what would I do? I might consider 3 approach depending on individual profile.
1. Use it to top up CPF SA for long term risk adverse investment
2. Buy STI ETF when value can be seen, e.g when STI index comes to certain level, 2900,2700,2500 etc
3. Keep in cash until one is very sure of buying individual stock after much due diligence and hard work has been done.

Unknown said...

I have use SCB for the last 4 years. Since early this year I find SCB a good brokerage to slowly nibble stocks since sgx change the lot size to 100. For example a $100 contract only cost me $0.30 in broker clearing n gst. Your reader may like to consider this option due to his small capital at this moment. Only diff is your stock is under the custodian of SCB but just like any foreign stock that we invest. Its has to be in custody of a brokerage firm

AK71 said...

Hi Solace,

The three points you have put up are very good suggestions. We can always rely on you for some level headed advice. Kamsiah plenty plenty. ;)

AK71 said...

Hi Eric,

Indeed so. I keep forgetting that per lot is only 100 shares now and not 1000 like before. Cham. This is a sign that AK is ageing... -.-"

For micro nibbling, an SCB brokerage account does seem to make quite a bit of sense!

Thanks for pointing this out. :)

qook said...

if I had 5-10k starting capital, I would buy a blue chip stock that has been battered recently by selected market perception, which also gives good dividends in the meantime. I think AK has blogged about some of these recently :) otherwise I wouldn't DCA into STI ETF at this stage, doesn't seem like value. Neither would i use CPF monies, 2.5% risk-free is kinda hard to beat. Only when there is blood on the streets would I throw in the kitchen sink and all, with Cpf as my final war chest

AK71 said...

Hi qook,

I agree that the risk free rates that our money in the CPF gets are hard to beat. :)

I have yet to touch my CPF-OA money. It remains an important war chest and only to be utilised when Mr. Market experiences extreme pessimism. ;p

Unknown said...

I would like to think blue chip is a almost sure win in a down market...but the returns is limited. Given his young age, if I were him, I would go for the next best which is high dividend stock / reits with low level debt. With STI coming down it would not be difficult to find one with 8%. K shouldbbe able to stomach such risk... and hey if the stock don't go up, at least there is this 8% to collect every year. Also with 8% to support the share...usually the share price is more stable in this environment. May still go down but limited.

AK71 said...

Hi Mike,

Thanks for weighing in on this. If he is going on the income investing route, your suggestion is definitely worth considering. :)

Unknown said...

For me as a fellow salary man especially with family, I feel income investing is worth considering. It is like you have another you working. No matter your career choice, this 2nd you is spread over few industries. Contrary to people who think buying shares is risky, I think of it as risk diversification.
In Singapore, there is no more iron rice bowl. Technology is changing the way people work and some disruptive tech can even kill your job. Things are hard to say now with the rise of automation and machines. We need to bulk up this 2nd person or shadow. He might help me when my career take a bad turn.

Another point of view.

AK71 said...

Hi Mike,

I really like the way you think. I can identify with this.

This is why I tell people that the best form of insurance in life is having a stream of passive income. :)

The best insurance to have in life.

Unknown said...


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