Based on my memory, the market had experienced a correction of more than 100 points the day before. I took the opportunity to try out a new investment type ie an ETF.
As of May 18, 2007, the last traded price was $35.29. A $2 appreciation in less than a month. Good decision on the timing but not on the amount invested.
So what is an ETF?
ETF is an exchange-traded fund. For STI ETF, it invests in the component stocks of Straits Times Index according to the respective weightage.
What are the advantages?
- It allows me to participate in the equity market at theoretically lower risk.
- It spares me the need to comb through piles of brokers' recommendation.
- It allows me to participate in the growth of a group of 50 companies representative of the Singapore economy.
- My fortune is thus not tied to the fate and turbulence of a single company. Many of these companies are the bluest of the bluest chips counters.
- I will receive dividends on dividends received from these companies.
- Any fees payable to the fund manager? Nil. I only pay for the commission and fees as per buying and selling shares on the exchange. Thus in terms of costs against fund-manager-managed funds, ETF is definitely cheaper.
- I might experience liquidity issue ie. there could be occassions where there are no buyers or sellers at prevailing price. But in recent weeks, I must say liquidity has improved. Not sure whether it was due to a letter written about the higher volume done on ST index in overseas exchanges.
- While I may have diversified away company-specific risks, I am still exposed to country-specific risk for STI ETF.
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