Objective : Achieve Index Returns
To me, there are two key ways to get the most out of index investing.
1. The Simple Act of Re-balancing
I don’t invest all my spare funds into STI ETF. I keep a sizable portion (30%) of my money as cash, and invest the rest (70%) into ETF. A bond ETF would have been better than cash for low correlation with stocks but the 1,000 lot size makes it pretty inflexible.
Besides serving the purpose as a buffer during wild fluctuations in the stock market, when stock market crashes it provides you with valuable funds to BUY into STI ETF at low prices! In the reverse scenario, when stock prices surge, re-balancing forces you to sell STI ETF and take profits. It is almost like a blinking flashlight in your face when you see your portfolio percentage that is heavily skewed.
Be greedy when others are fearful. Be fearful when others are greedy.
2. Index investing is about the amount of time I have in the market, rather than timing the market
As long as the selling price (when I retire) is higher than the average price I purchase STI ETF, it will do. The assumption is that the stock market is cyclical in nature and will not remain in a depressed state for an extremely long period of time, such as in the case of Japan.
To keep the average price low, I buy into STI ETF on a monthly basis regardless of the price movements. Furthermore, STI ETF gives dividends twice yearly, further driving down the average price the longer I hold it in my portfolio.