Here’s a comparison between investing directly in the three local Singapore banks (DBS, OCBC, and UOB) and investing in the SPDR® Straits Times Index ETF (SGX: ES3) to help you evaluate potential returns.
1. Direct Investment in Banks
Assumptions:
- Investment: $50,000 SGD split equally among DBS, OCBC, and UOB.
- Dividend yields:
- DBS: ~5.3%
- OCBC: ~5.0%
- UOB: ~5.0%
- Capital growth: Assume a 5% annual price increase per stock (based on historical performance and outlook).
Projected Returns (1 Year):
Dividends
- DBS: $16,667 * 5.3% = ~$883.35
- OCBC: $16,667 * 5.0% = ~$833.35
- UOB: $16,667 * 5.0% = ~$833.35
Total Dividend Income: ~$2,550 SGD
Capital Appreciation
- Stock price appreciation of 5%: ~$50,000 * 5% = ~$2,500 SGD.
Total Expected Returns (Direct Bank Investment):
~$2,550 (dividends) + $2,500 (capital gains) = $5,050 SGD (10.1%)
2. Investment in SPDR® STI ETF (SGX: ES3)
Assumptions:
- Investment: $50,000 SGD into SPDR® STI ETF.
- Dividend yield: ~4.0% (historical yield of the ETF).
- Capital growth: Assume 3% annual increase (reflecting the broader market).
Projected Returns (1 Year):
Dividends
- ETF dividends: $50,000 * 4.0% = ~$2,000 SGD.
Capital Appreciation
- ETF price appreciation of 3%: $50,000 * 3% = ~$1,500 SGD.
Total Expected Returns (STI ETF Investment):
~$2,000 (dividends) + $1,500 (capital gains) = $3,500 SGD (7.0%)
Key Comparison
| Metric | Direct Bank Investment | SPDR® STI ETF |
|---|---|---|
| Dividend Yield | ~5.1% | ~4.0% |
| Capital Growth | ~5.0% | ~3.0% |
| Total Return (1 Year) | ~10.1% ($5,050) | ~7.0% ($3,500) |
| Diversification | Low (3 Banks) | High (30 Stocks) |
| Risk Level | Higher (Concentrated) | Lower (Diversified) |
| Liquidity & Flexibility | Equal (Listed on SGX) | Equal (Listed on SGX) |
Recommendation Based on Goals
- Higher Potential Returns: Choose direct investments in the banks for stronger dividends and capital growth.
- Diversification & Lower Risk: Invest in SPDR® STI ETF to balance exposure to multiple sectors.
Assumptions for the 10-Year Projection
Initial Investment: $50,000 SGD evenly split:
- $16,667 each in DBS, OCBC, and UOB.
- $50,000 in SPDR® STI ETF.
Dividend Yields (based on historical averages):
- DBS: 5.3%, OCBC: 5.0%, UOB: 5.0%, STI ETF: 4.0%.
Annual Capital Growth Rates:
- DBS: 5%, OCBC: 4%, UOB: 4.5%, STI ETF: 3%.
Dividend Reinvestment: Assume dividends are reinvested annually to purchase more shares.
No Fees: Exclude transaction costs for simplicity.
Projection Results
| Year | DBS Value (SGD) | OCBC Value (SGD) | UOB Value (SGD) | Total Banks (SGD) | SPDR® STI ETF Value (SGD) |
|---|---|---|---|---|---|
| 1 | 17,834 | 17,333 | 17,526 | 52,692 | 51,500 |
| 2 | 19,077 | 18,053 | 18,319 | 55,449 | 53,545 |
| 3 | 20,433 | 18,809 | 19,136 | 58,378 | 55,688 |
| 4 | 21,910 | 19,601 | 19,978 | 61,489 | 57,929 |
| 5 | 23,516 | 20,429 | 20,847 | 64,792 | 60,269 |
| 6 | 25,261 | 21,297 | 21,743 | 68,301 | 62,711 |
| 7 | 27,154 | 22,203 | 22,668 | 72,026 | 65,259 |
| 8 | 29,208 | 23,151 | 23,621 | 75,980 | 67,916 |
| 9 | 31,434 | 24,140 | 24,604 | 80,178 | 70,683 |
| 10 | 33,847 | 25,172 | 25,617 | 84,636 | 73,566 |
Key Observations
Total Value After 10 Years:
- 3 Local Banks: ~$84,636 SGD.
- SPDR® STI ETF: ~$73,566 SGD.
Annualized Returns (including dividends and capital growth):
- Banks Portfolio: ~6.5% CAGR.
- SPDR® STI ETF: ~5.8% CAGR.
Diversification vs. Growth:
- The 3 banks portfolio outperforms due to stronger dividend yields and capital growth rates.
- The STI ETF offers broad diversification but sacrifices growth due to its sector-weighted structure.
Recommendations Based on Results
- Growth-Oriented: Focus on individual bank stocks for higher returns over time.
- Balanced Risk/Reward: Allocate a portion to both the banks and the STI ETF.
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