Meili Lee asked 1 year ago
Hi FP - i have US$50k and is considering whether I should invest in 1. ETF like CSPX/VUAA. Or. 2. Buy AMZN and Googl instead. I have a shorter runway to retirement and may not be able to DCA into the ETF ie have heard that S&P500 has run up a lot and is expensive. However, I am conservative risk wise, hence unsure about buying stocks directly. Hope you can advise.
3 Answers
Meili Lee answered 1 year ago
Hi team at FP, I would like to ammend this question to, should I look for intrinsic value of S&P500 the same way as taught in alpha quadrant, using Price to earnings? And validate with PEG valuation?
Victor Chng Staff answered 1 year ago
Hi Meili,
Investing in the index requires at least 20-30 years for effective dollar-cost averaging (DCA). If you have a shorter timeline, I suggest waiting for the S&P 500 PE to drop below its average or reach 1 standard deviation (SD) before entering.
Investing in the index requires at least 20-30 years for effective dollar-cost averaging (DCA). If you have a shorter timeline, I suggest waiting for the S&P 500 PE to drop below its average or reach 1 standard deviation (SD) before entering.
Meili Lee answered 1 year ago
Thank you Victor. On S&P 500, Do I just look at PE drop against average and standard deviation down? Would it be relevant to calculate an intrinsic value (Ave PExtrailing EPS) to find a margin of safety, and assume the ETFs track S&P 500 faithfully?
Victor ChngHi Meili,
There’s no need to calculate an intrinsic value for the S&P 500. Instead, focus on the PE range. If the S&P 500 is trading at its PE average, consider buying a small amount. When it reaches -1SD, increase your stake. As it goes lower, continue to increase your stake further. This approach allows you to gradually invest more as valuations become more attractive.
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