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Darren Seah asked 4 months ago

Hi Victor,
Can you advise on how do you determine the entry price when purchasing the S&P 500 ETF? Do we take the current PE ratio and compare with the average PE ratio for the past 5,10 years? Is there any other metrics that we should be taking into consideration?
Thanks. 

2 Answers
Victor Chng answered 4 months ago

Hi Darren,
 
May I know are you buying and hold the S&P 500 ETF for long term investment? I asking you this because the strategy for S&P 500 is different from individual stocks.  

Darren Seah replied 4 months ago

Hi Victor,
My aim is to hold long term. But perhaps you could share the strategies for both long and short term. Thanks a lot.

Victor Chng answered 4 months ago

Hi Darren,

There are many studies had shown that dollar cost averaging (DCA) will beat timing the market over the long run even if you are the best timer in the world. So if you are investing S&P 500 over a long term, my suggestion is to do DCA.
 
If you want to trade S&P 500 ETF then you can purchase it every time it hit below its 10 years average PE. 

Darren Seah replied 4 months ago

Hi Victor, thanks for the advice. I was thinking about DCA as well and it seems to be a method that stood the test of times..haha

On another note, can you recommend a source where I can get the EPS for the index? For example, i’m looking at IVV and whilst I can get the price from Yahoo Finance, I’m not sure if the EPS from the source below is appropriate to use in the calculation of the average PE

https://www.multpl.com/s-p-500-earnings/table/by-year

Victor Chng replied 4 months ago

Hi Darren,

Yes, you can use the EPS from this source.

Darren Seah replied 4 months ago

Ok thanks a lot.

As there are different type of S&P 500 ETFs available in the market, this same EPS can be applicable to the prices of the respective ETFs in the calculation of the PE ratio?

Victor Chng replied 4 months ago

Hi Darren,

You don;t have to calculate the PE ratio. It has been done on the website that you had shown.

https://www.multpl.com/s-p-500-pe-ratio

Darren Seah replied 4 months ago

Hi Victor,

Since there are other types of S&P 500 ETF such as IVV SPY , VUSD etc, how do I relate the website data to these ETFs as there are price difference between them. Can i say that as long as the current PE is lower than 10 years average PE (as calculated in the website), i can then purchase any of the ETFs?

Victor Chng replied 4 months ago

Hi Darren,

Even though all the S&P 500 ETFs have different prices but their valuation are actually the same. Yes you can purchase them below the 10Y average but I still suggest you to do DCA as it will perform better over a long run.