Buy STI ETF with CPF-OA?

Due to the 35% stock limit of CPF, I periodically purchased ES3 over the past few years.

With the market plunging over the past two weeks, I decided to check if it is worthwhile to do that, given that I get 2.5% compound interest by doing nothing. I am glad that my computation shows that the total dividend received from 2014 to 2019 is about 30% more than the CPF’s accrued interest. A rough calculation suggests that I am getting about 3.3% compounded return from the dividend.

What about the unrealized profit or loss?

Including my latest purchase, my average price is around $2.93. Based on today’s closing price of $2.69, my total return (including dividend) would be about 55% less than the CPF’s accrued interest, which translates to only a mere 1.1% compounded return. That’s bad but it isn’t often the price of ES3 is at this level. The last time it was at this level was about 4 years ago when the China market fell.

Based on the end of year’s closing prices from 2014 to 2019, all the compounded returns are higher than 2.5%. It seems unlikely at this moment that ES3 would close at those prices at the end of this year.  However, the chance of it doing so in the next 10 years should be pretty high, unless we go into another Great Depression!

So I think now is a good time to buy ES3 with CPF-OA, as there is a good chance of beating not only the OA’s interest of 2.5% but also the SA’s interest of 4%.

My plan

I intend to add on to my holdings four times at the following price: $2.85, $2.70, $2.55 and $2.40. After these four rounds, I would have double my holdings. I am done with purchasing for the first two rounds, so two more rounds to go.

If the price continues to plummet, I have sufficient ammunition in my account to do another four rounds of purchase. But let’s think about that when it happens.