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A Little Inspiration from Warren Buffet on Index Investing

Chanced upon BERKSHIRE HATHAWAY INC., Chairman's Letter dated 1996. That's almost 20 years ago! Some words of wisdom here -

Let me add a few thoughts about your own investments. Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.

- Warren Buffett 

Nikko AM STI ETF Enhances Index Tracking Precision

The Nikko AM STI ETF is now tracking the Straits Times Index on a total return basis rather than a price return basis. The investor experience will remain the same as dividends continue to be distributed on a semi-annual basis.

The change will provide a better reflection of how the fund manager is managing the portfolio and thereby imply better tracking precision.

Dividends are an important aspect of investing. Stock and ETF investors can reinvest dividends in order to earn compounded returns or bank their dividends as an additional source of income.

Over the ten year period ending 2013, dividends provided approximately one-third of the STI’s total returns which amounted to approximately 9% on an average annualised basis.

Read more here - SGX.com

SGX to Roll Out New and Revised Order Types for More Flexible Trading 31st March 2014

Investors will be given greater flexibility to execute their trades, when the Singapore Exchange (SGX) rolls out new order types for securities from March 31.

One of the proposed changes would allow investors to execute market orders and market-to-limit orders throughout the day's trading session.

[Read More Here]

Happy Index Investing in 2014

A feeling of deja vu. The Straits Times Index ETF roughly ended the same way it ended 2012, at $3.21.

As a real life case study, I have bought around 1,400 shares for Nikko AM STI ETF100 (G3B), at an average rate of roughly 100 shares each month. The average cost per share (excluding trading expenses) currently stands at S$3.2486, a little over a cent and a half higher than the price now (S$3.23) as I’m writing this post. Dividends collected came to a grand total of S$71.50 for 2013.

This is not Dollar Cost Averaging. I would have preferred to DCA, but we will have to wait for the Singapore Exchange (SGX) to reduce the standard board lot size to 1 unit before it is possible. Let’s keep our fingers crossed that we would be able to trade in lots of 100 units by this year, and in single units by 2015.

As you can see from my purchase log, I’m not too particularly about when I make the purchase in the month. Start of the month, end of the month, middle of the month – I’ve done it all. Heck, I’ve even forgotten during a month or two. As long as I have the discipline to stick my program, I’m guessing everything will average out over the course of my investment lifetime.

Here’s wishing you a Happy New Year! While wealth is important, there is nothing more important than good health, and happiness. May you have plenty of these two!

Celebrating 12 Months of Index Investing – Free Book Giveaway

I have moved! All present and future blog content have been migrated over to The Turtle Investor. All content on this blog will still be kept here, just that most updates will now go to my new blog instead.

The new website will contain content from my blogs relating to investment, personal finance as well as alternative income. See you there!

- The Turtle Investor @ www.turtleinvestor.net

To get a chance to win Free Book Giveaway (click here), please visit my new blog =)

Nikko AM STI ETF Highest Dividend Yet

Based on the latest information from SGX.com, the upcoming dividend payout from Nikko AM STI ETF (yes, they pay dividends if you didn't know) is the highest ever. Looking at historical data, Nikko AM STI ETF has traditionally lagged behind SPDR STI ETF when it comes to dividend payouts.

Nikko AM STI ETF
October 2013 - $0.045
May 2013 - $0.035
October 2012 - $0.035
May 2012 - $0.030

SPDR STI ETF
August 2013 - $0.045
February 2013 - $0.040
August 2012 - $0.040
February 2012 - $0.055

If you have been monitoring Nikko AM STI ETF prices, you might find it interesting that on Ex-date (Thursday, 10-Oct-2013), the price promptly dipped by the dividend amount to $3.18 together with a massive volume of 1,219,800 shares changing hands. This is considered a huge deviation from the norm because the daily average volume (past 3 months) is only 79,000 shares.

Happy Indexing!

NIKKO AM SINGAPORE STI ETF Ex-Date 10-Oct-2013

Upcoming Nikko AM STI ETF (Symbol = G3B) dividends.
Information extracted from SGX.com.

Expiry Date - 10 Oct 2013
Record Date - 14 Oct 2013
Date Paid/Payable - 31 Oct 2013
Dividend - SGD 0.045

Keching!

Expected Grand Total = SGD $54.00 ($0.045 x 1200)

The 10% Stock Picking Rule

Once again, this post was inspired by my readers who are looking for something more than Index Investing. One day, what if you can't help yourself and have an incredible urge to deviate from Index Investing? We are only humans, after all. Does this spell total disaster? Don't worry, you'll do just fine.

In the Millionaire Teacher's last chapter, Andrew Hallam recommends that if you really cannot refrain from picking individual stocks, do not commit more than 10% of your portfolio for stock picking. This is one rule that I agree with, and stick to religiously.

Like I have mentioned previously, this blog is about a personal story. A real story. My story. I won't kid you and declare that I don't pick individual stocks. I like to keep my finance journey fun. Who says growing my wealth cannot go hand-in-hand with having some fun?

The next question is, what stocks am I holding on to, besides STI ETFs?

Apple Inc. (AAPL) <USD>

No. of Shares : 1

Buy Price : $434.04
Prev Close : $489.56
Intention : Short / Mid Term

CapitaMall Trust (C38U) <SGD> 
No. of Shares : 1,000

Buy Price : $1.85
Prev Close : $1.98

Intention : Long Term

Both are very interesting companies which appeal me for a variety of reasons.

Trivial Question of the Day

Q : What does Apple and Capitamall Trust have in common?

A : Both pay quarterly dividends.

PS -
It was only a little more than a month ago that the STI almost dived under 3,000 points, halting at 3,004 points. Looks like it is sitting tight at 3,147 points today. Life goes on.

Government of Singapore Investment Corporation To Embrace Index Investing?

The world's eight biggest state fund with its portfolio valued at $248 billion is moving towards Index Investing. For a start, GIC is splitting its portfolio into two parts - one that is actively managed, and another tracks the market.

GIC Pte, manager of more than $100 billion of Singapore’s reserves, is changing its investment strategy for the second time in three decades to be more flexible as the global outlook becomes “complicated.”

GIC will split its portfolio into one that’s actively managed, and another that tracks the overall market, it said as its annual report showed returns were little changed. The company didn’t say how much of the assets will be managed or indexed against the market.

Source : Bloomberg 

Should I Care If The Straits Times Index Goes Under 3,000?

What a difference two weeks can make, you may ask.

 Two weeks ago, I bought 1 lot of Nikko AM STI ETF at $3.30. Since then STI ETF has been in a downward spiral. What is the price today? $3.09!

Okay, this may seem counter-intuitive to you, but does it matter to me now that it has dropped $0.21 (Omg! A loss!) in two weeks? Not at all! In fact, I hope that it will FALL even more.

Let's imagine I'm going shopping for something basic like groceries at Cold Storage supermarket. Assume I'm a Coca-Cola addict and drink it on a daily basis. Okay, I know it is not healthy but that's not the point here.

Do I like it when the price of my favourite Coca-Cola goes up? Nope. I want it to fall! Since I'm a Coca-Cola addict, I'm going to buy Coca-Cola regardless of the price increases (or decreases). Obviously, I would want the price to drop so that I will pay less for my daily fix of Coca-Cola. Makes sense?

Now, let's apply the same logic to STI ETF. Assume I'm a very disciplined investor in STI ETF and make a purchase every month, regardless of the price. Logically, I would want the price to be as low as possible when I'm stocking up on STI ETF so that I can buy it at a "discount".

The price only matters to me when I'm selling STI ETF - simple as that.Once you get used to this concept, you will find that price fluctuations is nothing more than mere distractions.

Meanwhile, I can look forward to Nikko AM STI ETF bi-annual dividends in October. Assuming I have 1,200 units by the expiry date, I can potentially pocket S$42 based on last year's dividend of $0.035.

Cheers!

SGX Seeks to Reduce Standard Board Lot Size to 100 Units

Source : Channel NewsAsia (19-Aug-2013)

Highlights

• SGX said it hopes to first reduce the board lot size to 100, and eventually to one unit.
• SGX aims to introduce the board lot size of 100 by the first quarter of next year (2014), and it could be at least two years (2015) before the lot size will be reduced to one unit.
• The proposed standard board lot size of 100 units will apply to ordinary shares, real estate investment trusts, business trusts, company warrants, structured warrants, extended settlement contracts and shares on GlobalQuote.
• Board lot sizes for exchange traded funds - barring the SPDR STI ETF and ABF SG Bond Fund - American Deposit Receipts and fixed income instruments, including Singapore Government Securities and preference shares, will remain unchanged. 

So, what does this mean?

For small-time index investors like myself, rejoice! Singapore ETFs, specifically SPDR STI ETF (ES3) and ABF SG Bond Fund, are targeted to have board lot size reduced to 100. A common problem faced by small-time investors is that a single lot of SPDR STI ETF cost in excess of $3,000+ and ABF SG Bond Fund $1,000+. A smaller board lot size will definitely make index investing more accessible for the average guy on the street.

Note

Nikko AM STI ETF (G3B) board lot size is already at 100 currently.

Nikko AM - Investing in MyHome

Part 5 of Nikko AM advertistment on Today newspaper on Nikko AM Funds.

As mentioned in an earlier post, you can rely on POSB - Regular Savings Plan to buy into the below funds if you wish to do so.

Nikko AM - Keeping Track of the STI

Part 4 of Nikko AM advertistment on Today newspaper on Dollar Cost Averaging (DCA).

Question

What is Dollar Cost Averaging?

Answer
Dollar cost averaging (DCA) is an investment strategy that involves investing of equal monetary amounts regularly and periodically over specific time periods in a particular investment or portfolio. By doing so, more shares are purchased when prices are low and fewer shares are purchased when prices are high. The point of this is to lower the total average cost per share of the investment, giving the investor a lower overall cost for the shares purchased over time.

Nikko AM - Bonding With ETFs

Part 3 of Nikko AM advertistment on Today newspaper - ABF Singapore Bond Index Fund (A35).

Taken from Nikko AM -

The investment objective of the Fund is to provide investors with investment returns that correspond closely to the total return of the iBoxx ABF Singapore Bond Index before fees and expenses.The iBoxx ABF Singapore Bond Index is an indicator of investment returns of S$ denominated debt obligations issued or guaranteed by the Singapore government (or any other Asian government), a Singapore government (or any other Asian government) agency, quasi-Singapore government (or any other Asian government) entity, or supranational financial institutions.

Top Portfolio Holdings (as of 30-Jun-2013)

Cash

Housing & Development Brd

Land Transport Authority

PSA Corporation Ltd

Singapore Government

Sp PowerAssets Ltd

Temasek Financial I Ltd

Do take the article with a pinch of salt. Sure, it stated factually how well it did in "difficult market conditions". I guessed they have forgotten to state how well it did in comparison during good market conditions?

Also, consider the possibility that during difficult market conditions, we instead BUY into equities at depressed prices, how much would we have gained when the market rebounded?

Time is our best friend.

Personally, I'm not recommending that you buy, or do not buy in it. It is merely a matter of choice. With a small capital, I do not touch ABF ETF at all since 1 lot (1,000 shares) costs $1160 at current prices. I prefer to keep cash instead for the "bond" portion of my portfolio.

At the moment, I'm roughly keeping my portfolio at a 70% (STI ETF) vs 30% (Cash) ratio, which I intend to re-balance annually.

Nikko AM - Diversifying Your Investment Portfolio With ETFs

Part 2 of Nikko AM advertistment on Today newspaper. If you want to achieve the below easily, consider this :

POSB 
- Regular Savings Plan (RSP) @ 0% sales charge (until 31 Dec 2013)
- Minimum investment sum of $100 monthly
(not sure about the initial investment, $1000 if I'm not wrong)

Fund Name 
- Nikko AM Balanced Funds - MyHome Fund HomeGrowth
- 80% into the Nikko AM Singapore STI ETF; and
- 20% into the ABF Singapore Bond Index Fund.
- Management Fee 0.5% p.a. from Fund Factsheet

Extracted from POSB Website

How does RSP work?

- With a RSP you make fixed monthly investments, regardless of market conditions
You avoid the uncertainties of market timing, by not speculating on the “right” time to invest your capital as a lump sum
- By investing a regular sum each time, you have the benefit of “dollar cost averaging” through buying fewer investment units when prices rise but more units when prices fall
- Over time, your average unit cost is lower than the average market price of the security during the same period of time

Nikko AM - ETFs and You

Just a short post on the Nikko Asset Management exchange traded fund (ETF) advertisement on Today newspaper earlier this week, in case you missed it. Perhaps you may find it helpful?

8 ETFs That Are Classified As Excluded Investment Products

Instead of four ETFs, Investors can now trade a total of eight SGX ETFs without having to be pre-qualified.

All ETFs are included under the list of Specified Investment Products (SIP) unless otherwise stated. Investors who wish to trade SIPs are required to be pre-qualified by the brokers through the Customer Account Review or take the SGX Online Education Programme.

Excluded Investment Products (EIP)

1. iShares Barclays Capital Asia Local 1-3 Year Currency Bond Index ETF
2. iShares Barclays Capital Asia Local Currency Bond Index ETF
3. iShares Barclays Capital USD Asia High Yield Bond Index ETF
4. iShares J.P Morgan USD Asia Credit Bond Index ETF
5. Nikko AM Singapore STI ETF
6. ABF Singapore Bond Index Fund
7. CIMB FTSE ASEAN 40 ETF
8. CIMB S&P Ethical Asia Pacific Dividend ETF

Source : SGX.com | ETFs | Specified Investment Products

OCBC Blue Chip Investment Plan (BCIP) vs Phillip Share Builders Plan (SBP)

Time for a simple comparison between OCBC and Phillip regular fixed-dollar amount investment plan. Been wanting to embark on index investing because it seemed so easy via OCBC or Phillip Capital?

Hold on for a second.

Let's assume a simple scenario of buying a single counter (STI ETF) monthly for $100, the minimum investment sum via OCBC Blue Chip Investment Plan (BCIP) and Phillip Share Builders Plan (SBP).

Fee & Charges

OCBC BCIP - 0.30% or S$5 per counter, whichever is higher

Phillip SBP - S$6.42 (inclusive of GST at 7%) for Total Investment amount <= $1000

Winner - OCBC (need to pay $5)

What if we're investing $1000 monthly instead?

Fee & Charges
OCBC BCIP - 0.30% or S$5 per counter, whichever is higher
Phillip SBP - S$6.42 (inclusive of GST at 7%) for Total Investment amount <= $1000
Winner - OCBC (need to pay $5)

Dividend Charges

Seems like both of them charges a 1% on net dividend.
For Phillip Capital, it is stated on their PDF file they charge 1% on net dividend.
For OCBC, one of my readers brought it to my attention, although I'm not sure where the source is. that they don't have dividend charges after he/she spoke to the bank officer.

Penalty Fee for Insufficient Funds

OCBC BCIP - No fee

Phillip SBP - $5.35 (Inclusive of GST) 

Based on my simple comparison, looks like OCBC is the better deal here in terms of net expense incurred. Of course, you can't compare this to Standard Chartered Online Trading Platform which charges a measly 0.2% only - that's only 20 cents per $100, or $2 per $1000. 

They don't sell in odd lots though, so you'll probably need to save up for a few months to make a purchase. As it stands now, if you save $100 each month, you can make a STI ETF purchase every 3 to 4 months.

For a small monthly investment sum of money, the fees are absolutely going to kill you. If you have the discipline, do it yourself via Standard Chartered.

I'll make it even worst for you, and show you just how bad a deal we're getting here in Singapore. Take a look a Betterment, a monthly investment plan based in the US.

Betterment
Monthly Deposit - $100/month minimum
Annual Fee - 0.35%
Looks ordinary. But wait, I have not revealed what the portfolio is.
Is it a single ETF? Nope.

When you deposit money with Betterment, it is seamlessly invested in a blend of two baskets - Treasury Bond Exchange Traded Funds (ETFs) and Stock Market ETFs. 

Stock Market Basket
25% VTI: Vanguard Total Stock Market
25% IVE: iShares S&P 500 Value Index
25% VEA: Vanguard Europe Pacific (EAFE)
10% VWO: Vanguard Emerging Markets
8% IWS: iShares Russell Midcap Value Index
7% IWN: iShares Russell 2000 Value Index

Treasury Bond Basket
50% TIP: iShares Barclays TIPS Bond Fund
50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund

All these, for $100 a month, at 0.35% annual fee. 

Only.

OCBC Blue Chip Investment Plan (BCIP)

When I first heard about the OCBC Blue Chip Investment Plan, the first thing I did was to scroll down to the Fees & Charges section! Before you go down the same path as me, first you can check out what it is. It has a decent webpage and plenty of information.

Now, for the important part of OCBC Blue Chip Investment Plan :

Buying/Selling of shares - 0.30% or S$5 per counter, whichever is higher.

Touted as an "affordable and hassle-free way to invest in blue chip shares", I guessed they forgot to tell you the humongous percentage of your hard earned money that would go towards paying of fees.

If you are going to invest only $100 monthly, your fees would be 5.0%.

If you are going to invest only $200 monthly, your fees would be 2.5%.

Even if you invest $500 monthly, your fees would still be pretty hard to swallow at 1.0%.

To be fair, they have stated that the launch promotion that is luring you in is only temporary.
For a limited time only, you only have to pay a fee of 0.30% when you buy or sell through BCIP.

Assume that the limited time promotion is over, and the Nikko AM STI ETF is priced at $3 now. You invest $100 monthly through BCIP. In 3 months, you spend $300, and pay $15 in fees. ($5 monthly)

Now, assume that someone buys Nikko AM STI ETF differently through Standard Chartered. Save up $100 monthly for 3 months, and buy 1 lot of 100 units for $300. Fees? 60 cents at 0.2%. (of course, you'll still need to pay the SG Clearing Fee)

I guess I'll be sticking to Standard Chartered Bank for now. Let's just pray that the 0.2% fee remains unchanged, shall we?

Useful Tidbit for Today : 

A lot of people have asked whether STI ETF pays dividend, and the answer is YES!