Index funds part 4: How to invest in index funds

This post is the last in a series of four in which I cover all you need to know about one of the greatest inventions in finance – index funds. See also:

• Index funds part 1: What is a stock market index?
• Index funds part 2: What are index funds?
• Index funds part 3: Why invest in index funds?

In the last article, I explained why I believe index funds are the best investment option for young adults who do not have a strong personal interest in investing. If you agree with the opinions shared there, this article will set you on your path to investing in index funds.

Do-it-yourself

The first option to invest in index ETFs is by trading manually through a broker. A broker is a company that engages in stock market trades on your behalf. That is to say, you give the broker instructions to buy or sell a share at a price, and the broker executes your order on your behalf. Most brokers these days operate online, so you give your instructions through a website or an app.

With a brokerage account, you can buy not just index ETFs, but individual stocks and a variety of other financial products. Personally, I use SaxoTraderGO and Standard Chartered Online Trading, both of which have reasonable fees, in my opinion. I may write another article in the future going into the details of brokerage accounts, but this is not the aim of this article.

With a brokerage account, you can search for the index ETFs that you wish to invest in and then submit buy trades. For example, the SPDR S&P 500 ETF Trust is traded under the ticker symbol ‘SPY’ on the New York Stock Exchange (in USD); the Vanguard FTSE 100 UCITS ETF GBP is traded under the ticker symbol ‘VUKE’ on the London Stock Exchange (in GBP); and the Nikko AM Singapore STI ETF is traded under the ticker symbol ‘G3B’ on the Singapore Exchange (in SGD). The ticker symbol of a stock is simply a code used to refer to it without ambiguity; it functions like a serial number.

Regular savings plans

The second option to invest in index ETFs is through regular savings plans (RSPs). Regular savings plans are basically a set of instructions to deduct a fixed amount of money from your bank account each month and invest that money into a pre-selected investment product.

Unfortunately, as far as I know, the regular savings plans available in Singapore do not offer index ETFs tracking major stock market indices other than the Straits Times Index. This means that this option is not relevant for investing in the S&P 500 or FTSE 100 index funds.

The table below gives a brief comparison of two popular regular savings plans that allow you to automatically invest in the Nikko AM Singapore STI ETF (G3B) monthly, which is an index ETF that tracks the Straits Times Index (30 of the biggest companies listed in Singapore). I remember starting DBS Invest-Saver once I started getting my National Service allowance years ago but have since moved to OCBC Blue Chip Investment Plan when I started earning a proper salary. Both are decent investment options, in my opinion. (Note that POSB is owned by DBS, and the two Invest-Saver programs are identical.)

Regular savings plan	Minimum monthly investment amount	Fees (for G3B)	Other counters you can invest in
DBS Invest-Saver / POSB Invest-Saver	S$100	0.82% (applicable to buying, no charge for selling)	Two other ETFs
OCBC Blue Chip Investment Plan	S$100	0.03% or S$5, whichever is higher (applicable to buying, no charge for selling)	Three other ETFs and fifteen blue-chip stocks

Assuming that you want to invest your monthly sum in the Nikko AM Singapore STI ETF (G3B), then the DBS/POSB option is cheaper for monthly investment amounts under $610, while the OCBC option is cheaper for monthly investment amounts above $610. We only took the buying fee into consideration for this calculation because our intention when investing in index ETFs is to buy-and-hold with a very long time horizon, possibly until retirement and beyond, so the selling fee is quite negligible at this point in time.

To sum up

• If you have a large sum of money for an upfront investment, or are willing to spend time regularly to trade, you should buy shares in the index ETF manually though a broker.
• If you want to invest smaller amounts regularly but do not want to have to spend time every month to invest, use regular savings plans.
• If you want to buy index ETFs other than the Nikko AM Singapore STI ETF, you will have to do it manually.

Approach	Fees	Index ETFs you can invest in	Convenience level	More appropriate for
Do-it-yourself	Lower	Nikko AM Singapore STI ETF (G3B); SPDR S&P 500 ETF Trust (SPY); Vanguard FTSE 100 UCITS ETF GBP (VUKE); and many more	Takes more effort to trade consistently	Larger initial investment amounts
Regular savings plans	Higher	Nikko AM Singapore STI ETF (G3B) only	Automatically invests monthly	Smaller, regular investments

This brings us to the end of this four-part series on index funds. Do you have any further questions? If so, please leave them in the comments below or ‘contact’ us via the page listed on the main menu!