Jun 26, 2021

Cory Diary : Exchange Rate Matters

Something strikes me today when I was thinking whether S&P500 ETF is the way to go that many financial experts recommended besides Warren Buffett who is an American.

So what I do is to pull up the historical exchange rate for the past 30 years. Basically, USD has depreciated roughly -25% against Singapore Dollars. So what-if I have invested say $1M starting 1990s. What is my compound returns for S&P500 ETF in Singapore dollars be like ?



Long term is 5% for Singapore Investor ?

Any investment in Oversea Market need to consider the risk of exchange rate. I am sure there are other considerations as well but I stop it here. BTW, the figures are ROUGHLY.


Cory
2021-0626

Articles in this Blog is personal take and educational purposes only. Reader should seek their own professional help when making financial decision and be responsible for their decision.

2 comments:

  1. You missed out on re-investing dividends.

    On total returns basis from 1991 to May 2021, US market gave 10.4% USD compounded returns. Which translates to 7.8% SGD. Let's round it down to 7% for costs.

    Similarly for Singapore market, 1991 to May 2021 gave 6% SGD compounded returns. Not too bad if it's a black box & you didn't look at it during 1998 or 2001 or 2002 or 2008 or 2015 lol.

    So effectively only 1% extra for US markets. But ... this is for the generic large cap stocks.

    Think people now are zooming for the hip-hop happening stocks that they hope will become 10-bagger within 10 years.

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    1. Yes, we should consider dividend returns. Whether we compound it, varies on people on this. Many retirees likely on draw down phase. Some youngers folks prefer to reinvest the dividends to something else. Let say 1.2% yield with withholding tax probably 0.9% even if you reinvest. One other cost i left out is transaction costs. In Poems can works out 0.7% effective or size transaction. I know there are cheaper or more ex ones as well with different brokers.

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