I Stopped Investing in the S&P500, Even Though it Works

"DCA into the S&P500 and forget about it". This advice can be found everywhere, even on TikTok, Youtube, Reddit and many other forums. It’s not bad advice. The S&P 500 has minted millionaires. It’s diversified, consistent, and backed by decades of historical gains.

But here's the thing, I stopped following it. I am not trying to beat the market or chase meme stocks. I simply walked away because what's optimal based on historical patterns is not always livable in real life. Your goals, geography and peace of mind may not always align with the all-American strategy. 

The S&P500 Keeps Me Up At Night

Investing is a super long-term project to me, and I want to build it on really solid grounds. Right now, the S&P500 looks unstable to me for a few key reasons.
  1. Valuations: Sky high valuations, with the index having an average P/E of ~28 well above its historical average of 19. At the price you are paying, it would take the companies 28 years to even earn this amount in profits.
  2. Taxes: As a Singaporean, every US dividend received is slashed by 30% due to withholding tax. This makes for a very bad foundation of a reliable income stream.  
  3. Currency Risk: We must convert SGD to USD in order to invest in the S&P500. A weaker USD simply means lesser returns when we switch back, and the SGD is appreciating in the long-term. This adds stress which I don't want.

A Liability Until the End

The S&P500 offers a low dividend yield of around 1% annually. It is not much of a passive income generator, and more like a long-term savings account that you have to withdraw from. It's something to constantly pay into, and only see the real benefit at the very distant end when we decide to liquidate. This approach doesn't provide the income flexibility I desire to supplement my expenses or even to simply feel financially secure in the present. I want my investments to work for me now, not just promise future wealth.

Staying Local and Sleeping Well

It does not sit well with me to blindly follow something that is popular and historically worked well. I have sold my S&P500 ETFs and pivoted to the Singapore Exchange and its income-generating assets. I can find comfort and value right here at home.

The Straits Times Index trades at a P/E of ~13. This is much more reasonable and gives me margin of safety at my buying price, with fewer nightmares about a market crash. Look carefully and you will find that the prices of stocks are well supported by their stable and generous dividends. 

The Three Big Banks (DBS, OCBC, UOB)

These banks are financial pillars of our region, known for their wide reach, stability and consistent shareholder returns. To me, they present a very compelling case for investment even in the face of certain headwinds. This is due to their attractive valuations (P/E), growth potential and dividend payouts.

DBS is an example of a stock that has given investors capital gains and great dividend payouts. Even as the stock is near its all time high, with a price around 44 SGD at this time of writing, you might find its price quite compelling based on the dividends it pays out. 

The company has forecasted ordinary dividends of 60 cents per quarter and special dividends of 15 cents per quarter. This is a total of S$3 dividends per share for FY2025, which is well supported by their EPS (TTM) of S$3.92. Rounding off our calculations, we see that DBS has a forward dividend yield of 6.8% even at the near all-time-high price of S$44. 

I am confident for the near future, it would not fall much lower than the recent low of S$36 where it had a dividend yield-on-cost of  >8%.

Patience Will Be Rewarded

Ultimately, the key to investment is proper diversification and staying vested. I choose to do stock picking over index investing in the STI, and while we can never perfectly time the market, looking at financial metrics is helpful for making an educated guess. 

Are you all-in on the S&P 500? Have you looked closer to home for yield? What does peace of mind mean in your investing journey?

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