The FTSE Straits Times Index (STI) is a capitalisation-weighted stock market index that is regarded as the benchmark index for the Singapore stock market. It tracks the performance of the top 30 companies listed on the Singapore Exchange.

STI 52-week range : 2,528.44 – 3,549.85

How the fortunes have changed in matter of months. Just 10 months ago, Singapore Straits Times Index reached a height of 3,500 points. Fast forward to February 2016 this year and here we are, staring at 2,500 points after a downhill roller coaster ride.

Perhaps you have had enough and is ready to throw in the towel? Maybe this is the stock market sale that Millionaire Teacher Andrew Hallam dreams about? What? You haven’t started buying yet? I admire your self-discipline!

Losing Sleep? Need Support?

In times like these, I am sure some investors are losing sleep over their losses and thinking to themselves whether they have what it takes to continue their journey and turn back.

Some may be looking for persons of authority to squash their fears and tell them that all this is temporary. Some may be looking for a support group to encourage each other and tell each other “it’s OK”. Some may already be over-invested and are desperately searching for the light at the end of the tunnel.

If you are an index investor, you may wish to join our “support group” if you feel a need to share your thoughts. If you are not, I’m afraid I have nothing much to offer. I can’t tell you which way the market will be headed tomorrow. But, what I can do is to share what I have been doing.

Portfolio Rebalancing

My core portfolio is based on index investing with a strict asset allocation and a fixed rebalancing rule. Just before the market correction, I was doing rebalancing every quarter but as the drop intensified, I found myself buying the laggard component of my portfolio more frequently with fresh money to push it back to my desired allocation. In particular, the drop experienced by STI ETF is even more extreme compared to a global index.

vwrd-vs-sti-etf

As it happens, the market correction happened at the best possible time for me. AWS and annual bonuses will be be paid out in three tranches in December, January and February. In addition to my monthly salary, these are extra funds I can potentially pour into index funds.

Play Money

My investment personality has always been of a rather defensive nature. This explains my choice of an index investing strategy to anchor the core of my portfolio. Outside of my core portfolio, I have a little bit of play-money which I enjoy putting into individual counters which are more resilient in times of crisis due to their supposed defensive nature. A nice plus point is their regular dividends/distributions.

You want names? Sure, but please don’t ask me why. Some of my money went into Capitaland Mall Trust, Fraser Centerpoint Trust, Parkway Life REIT and Starhub as they were dragged through the mud in the past few months. Important – I’m not advocating you consider buying any of them, and I certainly didn’t buy them at today’s prices.

The point is .. See? I’m just a normal retail investor just like you, and I’m buying because I believe in these businesses and that they will be around for years to come.

Nobody Knows What Will Happen Next

Just in case the worst case scenario happens (I’m a pessimist) and for some reason, the indexes continue to go further south for a prolonged period of time, it represents an excellent opportunity for me continue buying at even lower prices.

When that happens, what am I going to buy with? What if I have used up my warchest?

It pays to be prepared for the worst. A third of my portfolio is in ABF Singapore Bond Index Fund, and it has been a safe harbour for me. Ignoring the spikes here and there, it has pretty much held its own in the past year at around $1.14 to $1.16, and they pay out dividends too.

One option is to sell it and use the money to continue rebalancing my portfolio. Essentially, the desired behavior of selling high and buying low is being automated, and I will never run out of funds.

abf-sg-bond-etf

A second option is to use the money sitting in my CPF Ordinary Account. This is one option that I do not take lightly. 2.5% risk free returns is extremely hard to go up against. Even at current STI ETF distribution yield of 3.8%, I’m finding it difficult to convince myself to use it.

Assuming that STI ETF continues to drop to $2.50 which represents a 4% yield, plus further assumption that dividends do not dry up, then again why shouldn’t I just transfer the money from CPF-OA to CPF-SA and earn 4% risk-free? It seems that I would need a “shit-hits-the-fan” scenario with a tremendous up-side potential and huge margin of safety before I would be convinced to touch it.

All things considered, I think I’m handling the 1,000 points drop rather well. As much as I think that the next 1,000 points drop is extremely unlikely, I’m ready for it to happen.

More Than Index Investing

Be notified of new blog posts right from your inbox!
All you need to do is subscribe 😉

No Spam, Ever. Unsubscribe, Anytime. Powered by ConvertKit