It’s been 7 years and the 15HWW portfolio currently stands at around $430,000. It comprises $350,000 of capital which also means that the remaining $80,000 comes from net profits, dividends and interest from the deployment of the capital.
With sporadic injections of $350,000 of capital over 7 years, a simple proxy would be to assume that we are injecting $50,000 every year which is also equivalent to injecting $12,500 every quarter.
From this set of assumptions, I calculated that our annualised return thus far is 6.0%.
But what would have been the returns and outcome if I did not bother much about the markets and just invested mechanically and systematically into the STI ETF?
1. Since the 15HWW portfolio is currently about 60% invested in equities, for a better apple-to-apple comparison, only $8,000 would be invested into the STI ETF every quarter.
2. $30 of transaction cost would be added to each purchase.
3. The remaining $4,500 for each quarter will be parked in cash/bonds that generate 2-3% interest. Let’s assume quite reasonably that $126,000 will grow to become $145,000 at the end of the period.
- The value of 71,400 shares of STI ETF ($240,618) + the total amount of dividends received ($23,550) + the value of the cash/bonds($145,000) gives a final total portfolio value of $409,168 for this hypothetical simulation. The annualised return is about 4.5%.
- If we only focus on STI ETF’s annualised return, it is slightly higher at 5.2%. But honestly, this is still pretty pathetic if we are indeed near the end of a bull market. A 20% drop would wipe out all the accumulated returns. The Singapore market is really one of the worst geographical markets to be investing in for the past 7 years.
- This also means that the Singapore market is unlikely to be overvalued at this point in time. If there is no big correction in the world markets, especially in the US, there is a good chance the local index could catch up in the next couple of years.
- Even though 64% ($8000/$12,500) was invested in the market, it’s quite interesting that the equity portion at the end of 7 years comprise only 59% of the portfolio. The main reason is that dividends contributed the majority of STI ETF’s return during this period. The STI ETF is only marginally higher as compared to 7 years ago.
- If we compare 4.5% to 15HWW’s portfolio performance of 6%, it’s really not that much of a difference. It drives home the point that it is hard to outperform the benchmark and definitely even harder to outperform it by a huge margin.
- Even though index investing lost in this contest, did the 15HWW portfolio really win? Well, I only have an additional $20,000 to show after 7 years of effort, sweat and anguish. There is an argument that I should have focused on other aspects of my life rather than split hairs picking winners in the local market.
- Once again, there is only about $20,000 of difference at the end of the day. This gives credence to the idea that at the early stage of wealth building, the returns do not really matter. It’s the savings that’s doing 80-90% of the hard lifting.