Thursday, 1 September 2016

How we index invest every month

I have written a number of index investing posts in the past few months - Start index investing, Choose equity ETFs & bond ETFs and Build an ETF portfolio. It was early days for the blog and I didn't write them in a lot of detail. Plus my first self-hosted blog got shut down one weekend (I never figured out what happened) and I was still feeling hesitant with my second attempt.

As I start to develop my interest in writing, the length of my posts has increased and I hope the additional detail/opinions have been useful. However, given my focus on the index investing strategy, I realised that I haven't really explained how we do it every month. This post should give you an idea of what we actually do to execute the index investing strategy each month.
1. POSB Invest-Saver

I included the link to the POSB website that provides detailed information on what is the POSB Invest-Saver. Here is a summary:
  • Regular Savings Plan (RSP) that allows you to invest into the Nikko AM Singapore STI ETF (G3B) and/or ABF Singapore Bond Index Fund (A35)
  • G3B and A35 are Exchange Traded Funds (ETFs) listed on the Singapore Exchange (SGX)
  • Via a monthly GIRO arrangement that can be applied for on internet banking
  • Minimum monthly investment amount of S$100
  • 1% sales charge per transaction for G3B and 0.5% sales charge per transaction for A35
Since my wife has a DBS/POSB ibanking account, it was easy to set up the monthly GIRO arrangement online for the POSB Invest-Saver to carry out these automatic transactions:
  • S$300 is withdrawn on the 12th for G3B (or the next business day if the 12th is a non-business day)
  • S$100 is withdrawn on the 24th for A35 (or the next business day if the 24th is a non-business day)
These will be the purchase prices for the POSB Invest-Saver:
  • Average purchase price calculated on the 13th for G3B (or the next business day if the 13th is a non-business day)
  • Average purchase price calculated on the 25th for A35 (or the next business day if the 13th is a non-business day)
Now that the Stan Chart Online Equities Trading Platform charges minimum brokerage fees, the POSB Invest-Saver has become an even better way to accumulate small numbers of these ETFs every month.

Essentially, the S$400 is our minimum monthly investment amount. It keeps us vested in the Singapore stock market and takes away the emotion from dealing with market volatility and timing. This is how we ensure our ETF portfolio continues to grow every year by having constant inflows that outweigh any drops in the value.

I have mentioned previously on this blog about using Google Sheets for personal finances and SGXcafe to track our Singapore share portfolio. After every transaction for G3B and A35, we update the Google Sheet and SGXcafe portfolio for the number of units bought, purchase prices (including transaction costs) and total number of units held. 

2. Dollar-Cost Averaging (DCA) using the Stan Chart Online Equities Trading Platform

We use this platform to invest in the SPDR Straits Times Index ETF (ES3) listed on the SGX and various global equity & bond ETFs listed on the London Stock Exchange (LSE).

Global Equity ETFs (LSE)
Global Bond ETFs (LSE)
You can see on the Portfolios & Asset Allocation page how I have grouped the ETFs into: Singapore Equity, Global Equity, Europe Equity, Emerging Markets Equity, Developed Asia Pacific Equity, US Equity, Singapore Bond and Global Bond.

If you click on the links above to the ETFs and look at the holdings of each ETF, you will notice an overlap in the holdings of some of the ETFs. This is caused by me trying to invest into each major geographical region and the whole world separately. I would have reduced the number of types of ETFs I was buying if I had another chance to reconstruct the ETF portfolio to simplify things. But I will have to stick to this set up for now.

In a month with falling stock markets, we purchase significant amounts of these ETFs every time the prices drop below our last purchase prices by 5%. We don't try to catch the bottom of the cycle, we just keep buying them on the way down. This is the expansion phase of our ETF portfolio where most of the growth actually happens.

When the stock markets are flat in the month, we purchase small amounts of the ETFs at around our last purchase prices since the prices are hovering around the same level. This is more of an accumulation phase for our ETF portfolio since there is still growth but at a much lower rate.

In a month with rising stock markets, we make minimal purchases of these ETFs at higher prices and are okay to sit out most times since they can exceed our last purchase prices by quite a bit. There is barely any growth in the ETF portfolio at all during this phase.

Subsequently, we update our Google Sheet and SGXcafe portfolio for purchases of ES3 and only the Google Sheet for purchases of the LSE ETFs. These updates again relate to the number of units bought, purchase prices (including transaction costs) and total number of units held.

I know applying the traditional DCA approach requires us to continue buying the same amount of ETFs regardless of market conditions. You could say we are applying a modified DCA approach with an element of market timing. 

Reasons are simple. We have a large enough investment portfolio that provides us with some passive income and jobs with decent salary income. This is how we can build our cash positions and wait because we can afford to.

By starting the index investing strategy relatively young with sufficient active and passive income buffers, we understand there are many more market cycles ahead of us. There is no need for us to rush and we just have to be patient for the buying opportunities to arise.

Why should we worry about cash being a drag on our portfolio returns when we have such a long investment horizon and the willingness & readiness to utilise it when required?

As you can see, our index investing strategy does require us to monitor the markets (just quick price checks on a weekly basis) since you sometimes get enough market movement to warrant investment actions on our part. It's not difficult to execute but requires the discipline to wait and be patient.

Which is why it helps to have professional & social activities to keep myself occupied. And even a personal finance blog to write about my interests and remind myself about our index investing strategy. This is also how we can ignore the noise from the financial news and not let them influence our investing decisions.


  1. It makes a lot of sense to invest every month to take advantage of dollar cost average, that's what I do with work's RRSP account (similar to 401(k)). Investing every month really takes the worries out of investing because you add positions regardless how the market is doing.

    1. Hi Tawcan,

      Nice to see you here! I have been following your dividend income progress from your Canadian and US dividend paying stocks. The annual dividend income received is really starting to climb!

      Yeah, I don't have to worry about market timing by investing every month, which is why I still prefer the Dollar-Cost Averaging approach.

      Hope you had a good Labour Day long weekend!


  2. Hi TFS!

    It's interesting that I finally found someone with similar SOP in the investment style. Except my portfolio is not even a fraction of yours. Can I ask, are you still comfortable using SC to accum the US index? With my smaller portfolio (hence small allocation), the cost just doesnt make sense for me anymore!