Getting Protection Before Investing

Before investing, I firmly believe that one should have some protection in the form of insurance. No point in spending years accumulating $500,000 or $1 million only to blow it all due to an unforeseen medical catastrophe.

At the very least, you must have health insurance in the form of a private integrated shield plan for the enhanced (hospital and surgical) coverage. You would be surprised to know that many people only have MediShield!

MediShield

MediShield is a low cost basic medical insurance scheme. Introduced in 1990, the government designed MediShield to help members meet large Class B2/C hospitalisation bills, which could not be sufficiently covered by their Medisave balances. To avoid problems associated with first-dollar, comprehensive insurance leading to unnecessary over-consumption of healthcare services, MediShield operates with co-payment features such as co-insurance and deductible where patients share part of the responsibility for his medical expenses.

The co-insurance and deductible can be paid using Medisave or cash.

Deductible

A deductible is the initial amount you need to pay for claim(s) made in a policy year, before there is MediShield payout.

Co-insurance

Co-insurance is the percentage of the bill you need to pay on the portion of the bill above the deductible.

My Coverage

Shield Plan : Aviva MyShield Plan 2 (improved coverage)
Optional Rider : Aviva MyShield Plus Option A (cover co-insurance)
Optional Rider : Aviva MyShield Plus Option B (cover deductible)

Monthly Premium (for cash-only Riders) : SGD$18.51

Reading Materials

http://www.todayonline.com/commentary/revisiting-co-payments
http://www.todayonline.com/voices/co-payments-matter-balance
http://www.moh.gov.sg/content/moh_web/home/costs_and_financing/schemes_subsidies/Medishield.html

After securing your first line of defense against hospital and surgical bills, then it is time to find out more about term insurance and critical illness protection. Perhaps, another post for another time.

CPF Investment Account for Index Investing

Can you use money from your CPF to do index investing?
Yes!

If you are using your money from your CPF Ordinary Account (OA), you can open a CPF Investment Account with any one of the three CPFIS agent banks :

1. DBS Bank Ltd (DBS)
2. Oversea-Chinese Banking Corporation Ltd (OCBC)
3. United Overseas Bank Ltd (UOB)

Any amount in your CPF ordinary account (not including the first S$20,000) can be invested into Exchange-Traded Funds (ETF).

Important Things to Take Note

1. Transaction Charges - Check with individual banks for latest rates
2. Service Charges - S$2 service charge, per counter, every quarter

These two will quickly increase your cost if you're investing a small sum monthly!

Nikko AM Singapore STI ETF - Dividends

Does Nikko AM Singapore STI ETF pay dividends?
Yes!

Of course, you might ask : how do I check the dividends history?

1. Go to Singapore Exchange website.
2. Click on Company Disclosure.
3. Click on Corporate Action.
4. Under Company Name, select Nikko AM Singapore STI ETF.

Dividend History

31 Oct 2012 SGD 0.035
11 May 2012 SGD 0.03
28 Oct 2011 SGD 0.035
13 May 2011 SGD 0.03
15 Oct 2010 SGD 0.03
12 May 2010 SGD 0.02
13 Oct 2009 SGD 0.03

Nikko AM Singapore STI ETF - Part 1

Rule Number One in Investment - Know What You're Buying

Nikko AM Singapore STI ETF is a traditional exchange-traded fund, meaning it holds stocks in the index that it is tracking. This is opposed to synthetic ETFs. For a quick overview, check out the fact sheet provided on the official website.

Fund Description

The investment objective of the Fund is to replicate as closely as possible, before expenses, the performance of the FTSE Straits Times Index, or upon the Manager giving three (3) months' prior written notice to the Trustee and the Holders, such other index which tracks the performance of Singapore listed equity securities. The FTSE Straits Times Index is compiled and calculated by FTSE International Limited and represents the top 30 companies listed on the SGX-ST ranked by market capitalisation.

Full Holdings

I've reproduced the Full Holdings here, as at 30th November 2012 :

Singapore Telecom 9.3%
DBS Group Holdings Ltd 9.3%
Oversea-Chinese Banking Corp 8.5%
United Overseas Bank Ltd 7.7%
Jardine Matheson Hldgs Ltd 6.7%
Keppel Corp 5.0%
Hong Kong Land Hldgs Ltd 4.8%
Fraser & Neave Ltd 4.7%
CapitaLand Ltd 3.9%
Jardine Strategic Holdings Limited 3.3%
City Development Ltd 2.8%
Wilmar International Ltd 2.8%
Genting Singapore Plc 2.7%
Singapore Exchange Ltd 2.6%
Jardine Cycle & Carriage Ltd 2.4%
Singapore Press Hldgs Ltd 2.3%
Golden Agri-Resources Ltd 2.3%
Global Logistic Properties Ltd 2.2%
Singapore Airlines Ltd 2.2%
ST Engineering 1.9%
Noble Group Ltd 1.9%
CapitaMall Trust 1.8%
Sembcorp Industries Ltd 1.6%
Sembcorp Marine 1.3%
ComfortDelgro Corp Ltd 1.2%
IHH Healthcare Bhd 1.1%
CapitaMalls Asia Ltd 1.0%
Olam Intl 1.0%
Starhub Ltd 0.9%
SIA Engineering Co 0.3%

For S$300+ per lot of 100 units, you get instant diversification by owning all of the above stocks.

Expense Ratio

Expense Ratio is a measure of what it costs to operate the fund. This is important as we would prefer to keep this as low as possible in order to maximize our gains.

Management Fee 0.20% p.a.
Trustee Fee 0.08% p.a

Looking at the fact sheet for Nikko AM Singapore STI ETF, you would think that the expense ratio should have been 0.28%. However, comparing against the prospectus (see Section 36.6), expense ratio is listed as 0.48%.

• Nikko AM Singapore STI ETF Prospectus (see Section 36.6)
  Expense Ratio = 0.48%

Let's compare this versus another STI ETF.

• SPDR Straits Times Index ETF (STI) Prospectus (see Section 39.2)
  Expense Ratio = 0.30%

When S$300 Isn't Enough To Purchase A Single Lot of STI ETF

A common problem faced by novice investors like myself - what if S$300 isn't enough to purchase a single lot (100 units) of Nikko AM Singapore STI ETF [ticker symbol G3B], which is already the bare minimum?

[Example]
The price of Nikko AM Singapore STI ETF at closing today is S$3.26 - the market kind of rallied after US averted the fiscal cliff, for now. You realize that S$300 is not enough for you to purchase one lot. You simply save the money and wait for next month.

If you're investing and not speculating, you're in this for the long haul. Not being able to invest monthly shouldn't matter to you at all.

[Reading material]
Drizzt from Investment Moat is an excellent writer, and his article that I've linked would be a great read for all index investors. Do spend some time going through his other articles too. I'm sure there is something for everyone to benefit from.