• Dollar Cost Averaging (DCA) is an alternative method to lump-sum investing, providing a means to build gradual ETF and stock exposure in the local stock and securities markets. From 31 Dec 2019 to 31 Jul 2023, the indicative Compound Annual Growth Rate (CAGR) of month-end dollar cost averaging on an STI ETF amounted to 5.0%.  
   
• Using fixed dollar amounts each month, DCA allows investors to cumulate more shares/units at market lows and less shares/units at market highs. As an educative example, investors utilising a S$1000 DCA on the STI, would have bought 407 units on the 31 Oct 2020 close with units trading near S$2.46, and close to 30% LESS units or 290 units on 31 Jul 2023, when units were trading near S$3.45.
   
• The comparative CAGR of the STI ETF DCA could also have been further boosted by investing unutilised funds in SGS Bonds, T-bills and Savings Bonds. The most utilised Singapore-listed ETFs by DCA investors going into this year included the Nikko AM STI ETF, SPDR STI ETF, ABF Singapore Bond Index ETF, Nikko AM Straits Trading Asia ex Japan REIT ETF and Nikko AM SGD Investment Grade Corporate Bond ETF.

The Straits Times Index (STI) has been providing a continuous performance benchmark for the local stock market since the beginning of 1967, in the then form of the Straits Times Industrials Ordinary Share Index. At 3,373.98 at the end of July,  the Index has grown at a Compound Annual Growth Rate (CAGR) of 6% over the past 56 ½ years. The composition of benchmark Indices such as the STI change over time to reflect the largest and most actively traded stocks of the exchange, which in itself provides a form of a passive, market following investment strategy subject to the usual market risks. For STI constituent performances in the first seven months of 2023, please click here.

Since April 2002, the STI has been investable in the form of an Exchange Traded Fund (ETF) which from inception through to the end of July generated an annualised total return of 6.4%. This total return assumes the ETF dividends (which are currently paid semi-annually) are reinvested into units. Lump-sum investing into the STI ETFs at the end of 2019, with dividend re-invested into the ETF units, produced on average indicative 4.8% annualised total returns, not including transaction fees through to 31 July.

Dollar-Cost Averaging (DCA) into the SPDR STI ETF from the end of 2019 through to the end of July 2023 generated a similar indicative 5.0% annualised total return, not including transaction fees. Due to the lower base for initial dividend distributions that comes with DCA, in addition to the DCA attempting to mitigate some of the timing risks that come with lump-sum investing, DCA would not generally expected to outperform lump-sum investing. However over the full 43 month tenure spanning 31 December 2019 to 31 July 2023, DCA investing kept pace with the returns of a lump-sum investment in a STI ETF. As illustrated below, this was mostly attributed to the volatility that took hold of global stocks in 2020.

Note: Prices are month-end closes for the SPDR STI ETF, starting with the 31 December 2019 unit price of S$3.277 through to the 31 July 2023 unit price of S$3.447. There were also seven dividend distributions that were reinvested into units over the full 43 months.Sources: SGX, Bloomberg, Refinitiv (Data as of 31 July 2003).

As illustrated above, a DCA plan on the SPDR STI ETF saw more than the average monthly quota of units purchased in 2020. In fact, as much as 30% of the total units were purchased at a price less than S$3.00 between March 2020 and February 2021. This effectively brought down the average purchase price on the DCA to S$3.087, lower than the S$3.277 otherwise lump-sum investing price at the end of 2019. Had the STI ETF stayed at S$3.00 for those 12 months, the CAGR of the DCA in this educative example would have been reduced from 5.0% to 3.9%.

The months of October 2020 and July 2023 provide another educative example on how investors may cumulate more shares/units at market lows and less shares/units at market highs. For instance, investors utilising a S$1000 DCA on the SPDR STI ETF, would have bought 407 units on 30 October 2020 with units trading at S$2.456. Then, on 31 July 2023, with the SPDR STI ETF trading at S$3.447, the S$1000 DCA would see investors acquire 290 units. This represented 30% less units that what would have been acquired on 30 October 2020.

The DCA also assumes dividend distributions were reinvested into units. For instance if the DCA began on 31 December 2019, the first distribution would have gone ex-div in February 2020, with S$0.056 paid per unit. At that time 305 units had been purchased at the end of December 2019 and 312 units had been acquired at the end of January 2020. The combined 617 units went ex-dividend in February 2020 at S$0.056 per unit, equated to near S$35. If reinvested at the end of March, this would mean S$1,035 was available to acquire a total of 416 units at S2.485 per unit on 31 March 2020. Note the dividend distribution may have been available for reinvestment at the end of February, however, given potential time lags in adjusting the set DCA amount for the month, this educative example assumes the seven distributions over the period were invested the following month. Had the dividend distributions not been re-invested the indicative CAGR was 4.9%.

Assuming S$1,000 was invested at the closing price of the SPDR STI ETF at the end of each month starting from December 2019 to the end of July 2023, the outlay would have totalled S$44,000, with the tenure of the investment 3 years and 7 months, or 43 months. Based on the 31 July 2023 unit price of S$3.447, the 15,227 units bought would have been valued at S$52,487, for a basic ROI of 19.3%. As discussed above this generated a CAGR of 5.0%.  The comparative CAGR of the DCA on a STI ETF since 31 December 2019 could also have been further boosted by investing unutilised funds in SGS Bonds, T-bills and Savings Bonds. The most utilised Singapore-listed ETFs by DCA investors going into this year included the Nikko AM STI ETF, SPDR STI ETF, ABF Singapore Bond Index ETF, Nikko AM Straits Trading Asia ex Japan REIT ETF and Nikko AM SGD Investment Grade Corporate Bond ETF.

Note DCA and ETF investing is also subject to market risk. For instance had the STI declined 10% from S$3.284 at the end of June 2023 to S$2.956 in July 2023, to CAGR from 31 December 2019 to 31 July 2023 would have fallen to 0.7%. Had the STI declined 15% in the month the CAGR over the period would have been a 0.9% decline.  

The SGX Academy website includes more information on DCA via Regular Shares Savings Plans such as the DBS Invest Saver, FSMOne Regular Savings Plan, OCBC Blue Chip Investment Plan and Phillip Capital Share Builders Plan.