S&P 500 Index: What It Is, How It Compares To The Straits Times Index (STI) & Rocket Method Trading (Plus Upcoming FREE Live Webinars)
Regardless if you’re a student or a working adult, most of us know that we should probably dabble in investments and earn passive income. If you want to increase your wealth or reach your financial goals, plainly relying on your paycheck is not going to cut it.
Of course, there are some of us who have been diligently saving and putting our money into our savings account. But, numbers don’t lie. Even the highest interest rates for a savings account by banks is only at 3.88% per annum.
As for those who are interested in investments, they would have heard of stocks. Investing in stocks is common in Singapore, though there are often horror stories of investors who got badly burnt in trading.
Aside from stocks, there’s actually another form of investment known as Exchange-Traded Funds (ETFs). What are ETFs? How safe are they and what about instruments such as the S&P 500 Index? How does the S&P 500 Index compare with the Straits Times Index (STI)? Read on to find out which suits you more.
Disclaimer: This is not financial advice. It’s a short explanation and if you decide to invest in any of the instruments, please do your due diligence.
What is an ETF and the 7 Popular ETFs in Singapore
ETF stands for Exchange-Traded Funds. It is an investment fund that is traded on stock exchanges and consists of assets such as bonds, stocks and more. Confused? Don’t worry, let’s use an example to make it more relatable.
At the supermarket, you can buy apples, bananas and oranges. These are classified as fruits, just different types of them. In investments, stocks, options, the S&P 500 index are the same. They are just different investment instruments.
Just like how some people fancy apples to oranges, some people prefer investing in ETFs to other instruments.
So, what are the popular ETFs? Here we have the top 7 ETFs in Singapore:
|ETF In Singapore||What It Tracks|
|1||S&P 500 ETF||Top 500 companies on the US stock market|
|2||SPDR Straits Times Index (STI)||Largest 30 companies on SGX|
|3||Phillip Sing Income ETF||Top 30 stocks on the SGX|
|4||Lion Phillip S-REIT ETF||Top Singapore REITs|
|5||ABF Singapore Bond Index Fund||High-quality bonds by the Singapore government and quasi-government entities|
|6||Nikko AM STI||Largest 30 companies on SGX|
|7||SPDR Gold Shares||Price of gold bullion|
There are of course, other instruments such as stocks and options.
Choosing the right type of investment for yourself depends on your long-term goals, how patient you are and how much time you have. A full-time trader might choose a different investment route from an office employee trying to make passive income on the side.
ETFs vs Unit Trust – Who does what?
Okay, before we explain more about what ETFs are and what they do, there’s another index fund that’s available – Unit Trust.
A unit trust may also be known as a mutual fund. It is generally a fund where investors combine their investment money and pass it to a fund manager. This fund manager then takes the money and puts it into a bunch of different investments.
1. You have no control in a unit trust
When you choose unit trusts, it becomes a collective investment. As the name suggests, you have to trust your fund manager. You have no control over the components in the investment portfolio and you pass the remote control to your fund manager.
2. ETF fees are lower than that of unit trust charges
Unit trusts are professionally managed by fund managers. This means that the manager has to research, keep himself or herself up-to-date with the latest news to make informed financial decisions. A unit trust fund manager will collect higher commission fees up to 5% of your potential profits.
ETF fees are lower compared to a unit trust. This is because ETFs are passively managed and even if there is a fund manager, it would not require the same amount of time and effort to manage the account like a unit trust.
3. You need higher initial investments for a unit trust
In general, you will need to prepare a greater initial investment amount for unit trusts than ETFs. Most banks in Singapore do set a minimum investment amount (for example, $1,000) before getting back to customers.
On the other hand, you do not need a lot of money to start on ETFs.
S&P 500 Index vs STI: What are they and what do they measure?
What is the STI and what do I need to know about it?
Let’s begin with something closer to home, the STI.
STI is one of the top ETFs in Singapore and it stands for the Straits Times Index. It was created in 1966 and it is an index consisting of the largest 30 companies in Singapore. STI is Singapore’s very own index that tracks the top companies’ stock exchanges on the SGX.
STI is 100% based on Singapore’s market.
It tracks the top 30 companies in Singapore, which are also known as “blue chips”. These “blue chips” are the strongest companies with great liquidity.
If you’re wondering why we need the STI, it is because the index allows other countries to know how Singapore’s economy is doing. This affects our trade, global image as well as our financial standing. With a stronger economy and index, it will attract greater investments from other countries, generating jobs and research and development.
Here are the top 10 companies (aka blue chips) and their weight at the time of writing this article (2 July 2020):
|DBS Group Holdings Ltd||15.9%|
|Oversea-Chinese Banking Corp||11.0%|
|United Overseas Bank Ltd||9.9%|
|Jardine Matheson Hldgs Ltd||4.6%|
|Keppel Corporation Limited||4.2%|
|Ascendas Real Estate Inv Trust||3.6%|
|Singapore Exchange Limited||3.3%|
|Wilmar International Limited||3.0%|
As you can see from above, the STI is mainly dominated by the financial sector and banks. DBS Group Holdings Ltd (DBS), Oversea-Chinese Banking Corp (OCBC) and the United Overseas Bank Ltd (UOB) are at the top currently.
So, what is the S&P 500 Index and what does it track?
The S&P 500 was created in 1957 and it stands for the Standard & Poor 500 Index.
The S&P 500 Index is similar to the STI. The key difference is that instead of tracking the top 30 companies on the Singapore market, it tracks the top 500 publicly traded companies on the US market.
It is the market capitalization of the US stocks and the 500 leading companies represent approximately 80% of the market capitalization. The S&P 500 is the best gauge of US equities.
Some traders prefer the S&P 500 as it is a fair and transparent platform. S&P 500 is traded on the Chicago Mercantile Exchange (CME). Unlike Forex, you don’t have to pit against brokers and bankers and on platforms with market makers.
As S&P 500 is traded on the CME, you will need to follow trading hours based on Chicago’s local time. Traders usually begin work at 9.30pm, Singapore time.
S&P 500 is the most traded index in the world, with the largest trade volume. This means that trades occur very fast. High volume means that there is more liquidity and higher reaction. As compared to stocks, you will not need to hold them for days, months or years.
Other than it being one of the global stock market indices, it also offers great diversification which is important in investments.
Some of us might be looking for alternatives to local investments. Never put all your eggs in one basket. If you are looking expand and diversify your investment, you can consider S&P 500 and their global assets. Additionally, S&P 500 is not taxed as it is done on the US market.
Which US companies are on the S&P 500?
No matter how much of a hermit you are or how unfamiliar you are with investments, you would have heard of at least one of the companies accounting for the S&P 500. Think Microsoft Corporation, Apple Inc., Facebook, Walmart and more.
|Name Of US Company||Symbol||Percentage Of Assets|
|Facebook Inc. Class A||FB||2.22%|
|Alphabet Inc. Class A||GOOGL||1.68%|
|Alphabet Inc. Class C||GOOG||1.63%|
|Johnson & Johnson||JNJ||1.44%|
|Berkshire Hathaway Inc. Class B||BRK.B||1.34%|
|Visa Inc. Class A||V||1.27%|
|Procter & Gamble Company||PG||1.15%|
Based on the above table, you can see that the US market is mainly dominated by the Information Technology (IT) sector. The industry that dominates the market plays a key role in how well the market will perform when there are changes.
For example, COVID-19, the worldwide pandemic, has affected each industry on different levels. Tourism hit the rocks while the IT industry grew as more people leveraged on technology when working from home. We used Google Meet, Skype, Zoom, BlueJeans and more for online meetings. This affects the decline and recovery of the market which will be explained later.
Do you need a CDP Account for S&P 500?
Before you dive into investments, make sure you have what is needed. For investment newbies, you will need to create a CDP account if you are planning to invest in stocks and bonds.
CDP refers to the Central Depository Account (CDP). It is kind of like your passport to invest in stocks or bonds. Without a CDP account, you cannot trade on the Singapore exchange.
For S&P 500, you do not need a CDP account. This is because the trades are all done on the US market.
How has COVID-19 affected the S&P 500 index and the STI?
The only things Singaporeans remember about 2020 are probably COVID-19, the Circuit Breaker, General Elections 2020 and that bubble tea was not available for almost two months.
COVID-19 has definitely affected the investment sector. Due to country-wide lockdowns, businesses have been severely affected, causing market crashes.
The travel industry is one of the most affected sectors not just in Singapore, but in the entire world. To contain the pandemic, tourism came to a halt. On local grounds, the Singapore Airlines (SIA) shares fell to a record low in 2020 and they even parked several planes in Australia until further notice.
COVID-19 has caused both the STI and the S&P 500 index to drop. In March 2020, there was a drop of approximately 32-34%. STI fell first because COVID-19 started appearing in Singapore before it hit the streets of the USA.
Since the stock market crashed, governments have been doing all they can to help the economy and save jobs. In Singapore, Deputy Prime Minister Heng Swee Keat came up with several Singapore Budgets announcing measures, totaling up to $60 million SGD. These plans were aimed to help save jobs and cushion the impacts of COVID-19.
In the USA, the US Federal Reserve also lent a hand to the people via Quantitative Easing (QE). They prepared an amount of $2 trillion USD to help save the economy. In case you are wondering what QE is, it is a monetary policy where they increase money supply to encourage lending and investment.
In layman terms, print money. Kaching kaching!
S&P 500 recovered faster than the STI since COVID-19
Based on Google, there was an increase in the search about S&P 500 starting from 16 February 2020 which peaked in March. Increase and spikes were probably due to the market crashes.
Now, remember that I mentioned how the STI is dominated by financial companies while the S&P 500 is dominated by IT companies? Here’s where it plays a key role in the recovery of a market.
Both indices fell by 32-35% due to the pandemic but today, they have recovered significantly from its lows in March 2020.
STI has recovered from its crash of -32% to a -21% from it’s pre-COVID-19 value. S&P 500 on the other hand has recovered to -13%.
Doing the math, there is a difference of 8% and the S&P 500 recovered faster than the STI even though it crashed later.
It is interesting to note that the S&P 500 recovered faster despite the record high unemployment rates in the US, the killing of George Floyd and the Black Lives Matter (BLM) movement.
Based on reviews and research, this is due to the component stocks that make up the STI and the S&P 500. STI component stocks are made up mainly of financial companies such as DBS and OCBC. S&P 500 component stocks are well-diversified including major IT companies such as Microsoft and Apple which grew this COVID-19.
High-growth company Microsoft’s stock was up by at least 12.5% this 2020 with remote working and more businesses using cloud infrastructure. S&P 500 consists of more high-growth companies while some companies on the STI might have already reached maturity.
Trades materialized faster on the S&P 500 due to the pandemic
COVID-19 caused businesses to pause and the market to dive. People started selling their shares and because of this, trades on the S&P 500 materialized even faster. Time spent trading was reduced from 10 minutes to 3 minutes.
To understand how day trading was like during the COVID-19 crisis, here’s a sharing by the founder of Concept of Price, Marcus Tay. It’s a pretty in-depth video explaining how the market was affected and how traders such as himself reacted.
Concept of Price: Who they are & the FREE live unique webinar they are offering on 15 July 2020
If you are interested in ETFs and the S&P 500 in particular, it might be helpful to listen to sharings by experts or actual traders.
Concept of Price is organizing a FREE live webinar that teaches individuals how to trade S&P 500. They will share about their unique Rocket Method Trading along with a demonstration of using the Rocket Method to enter and exit a trade.
Wait, who are they?
Concept of Price and how the group started
Let’s backtrack a little.
In 2007, a group of experienced traders gathered and formed Concept of Price. This group of traders in Singapore wanted to help ordinary individuals create their second source of income. You will probably need that with the high cost of living and inflation rate in Singapore.
They wanted to build a community of like-minded people where trading experiences are shared. Other than students or individuals who trade part-time, the group also includes full-time investors in their mid 20s to 60s. These traders have gone through strict practice of at least 100 stimulation trades before a Live Trade is taken.
Currently, their Chief Future Trainer, is Marcus Tay, is an experienced full-time trader who updates his students and Concept Of Price’s Facebook page on a daily basis. Their Facebook page has gained 1.65k likes and 1.79k followers.
Concept of Price will be holding a FREE live webinar on 15 July, and another one on 18 July titled “Rocket Method: S&P 500 Day Trading Made Simple”.
There are two FREE live webinars. So, don’t worry if you can’t make it for the first webinar, another one will be available!
The webinar will teach attendees how to trade S&P 500, how day trading works and how to get started. The speaker will explain the benefits of the S&P 500, how traders can benefit from both the ups and downs in the market.
Concept of Price will guide attendees through their unique trading method, also known as the Rocket Method. It is a method that allows investors to execute a trade very quickly. Most importantly, they will be providing a demonstration on using the Rocket Method to enter and exit a trade.
FREE Live Webinar by Concept of Price
|Rocket Method: S&P 500 Day Trading Made Simple|
|Date||:||15 July 2020 (Wed)|
|Date||:||18 July 2020 (Sat)|
In any case, it is important to do your homework before putting your hard-earned money into any form of investment. There is no investment that doesn’t carry risks and it depends on how much you are willing to put in.
As Warren Buffett said, “we don’t have to be smarter than the rest, we have to be more disciplined than the rest”.