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!

Singapore REIT ETF?

Browsing through the search queries that brings visitors to my blog, I always come up plenty of content ideas. The area of Real Estate Investment Trusts (REITs) is one that I'm personally interested in.

Just a day or two ago, one of the the search keyword that led visitors to my Index Investing Blog is "drop in reits singapore". I guess somebody must have been spooked by the sharp drop on Thursday?

While the Straits Times Index dived 61.20 (1.77%), the FTSE ST Real Estate Index recorded a drop of 26.67 (3.17%) in comparison.

Now, does people seriously think that the only way REITs can go is up? The interest rate is low in the current environment, but it does not mean it will remain this way. Read about REITs' vicious cycle of interest rate risk here. If you're serious about REITs investing specifically in Singapore, pick up Building Wealth Through REITs by Bobby Jayaraman, and you'll know more about Singapore REITs than 90% of the investors out there. Learn, and understand what you're investing in.

Coincidentally, another search term that brought visitors here was "singapore reit etf". To the best of my knowledge, there is no such product. The closest one you can get is Phillip Singapore Real Estate Income Fund by Phillip Capital (fund size S$46m). 

Is it an ETF? No.

Will you incur additional expenses as a result? Yes.

Is it worth it? Depends on the individual.

From the perspective of a small-time investor who believes in both the capital-appreciation and dividends-paying characteristics of REITs, it is an accessible way to invest (e.g. S$200/monthly regular savings plan) and buy into 20 REITs or more. 

"Low" cost.

Instant diversification. 

Quarterly dividends.

No worries over REITs rights issue.

Of course, these come at the price of fund management fee / sales charge etc.

Lastly, there are global REITs ETFs (e.g. VNQI:US and VNQ:US) such as those offered by Vanguard. Do take note that you're going to take a severe hit (30%) in terms of tax withholding for dividends covered in my previous post.

On a side note, Vanguard has recently listed its first Hong Kong-domiciled exchange traded fund (ETF). Will they be coming the the shores of our beloved country? I sure hope so!

Tax Withholding in the United States

I had previously read about Tax Withholding in the United States, but I haven't really had the chance to experience it until recently.

If you are unaware, three key types of withholding tax are imposed at various levels in the United States:

• Wage withholding taxes,
• Withholding tax on payments to foreign persons, and
• Backup withholding on dividends and interest.

We are interested in specifically withholding tax on payments to foreign persons. Based on Wikipedia, you can see that ".. payments subject to withholding include compensation for services, interest, dividends, rents, royalties, annuities, and certain other payments. Tax is withheld at 30% of the gross amount of the payment."

What does this mean to you, the investor?
Simple. Dividends is taxed at 30%.

Anyway, just to relate my experience, I picked up a single unit of AAPL some time ago via Standard Chartered Online Trading. (and the exchange rate sucked, by the way)

Whaaaaaat? Now, just hang on a minute, isn't this an index investing blog? Well, yes, it is. My "investment" fund is solely devoted to index investing. 

However, my "hobby" fund is meant for whatever I want to use it for. Some people collect stamps, some people collect toys ; I collect stocks. You are not encouraged to this. At all.

Okay, now that I've addressed this, let's head back to Tax Withholding in the United States. I picked up AAPL not because of it's dividends, but because of this I was able to see how it worked.

On April 23, 2013, Apple's Board of Directors approved a 15% increase in the Company’s quarterly dividend and has declared a cash dividend of $3.05 per share of the Company's common stock. The dividend is payable on May 16, 2013, to shareholders of record as of the close of business on May 13, 2013.

On the 20th, the dividend was promptly credited into my Standard Chartered account. 

As you can see, the dividend is indeed USD $3.05 as stated in Apple's website. Notice there is another record stating US Withholding Tax of USD $0.92. Well, guess $3.05 * 30% = $0.915.

If you're following the advice of Millionaire Teacher Andrew Hallam and investing into a world stock ETF such as Vanguard Total World Stock ETF (which gives quarterly dividends), now you know why your dividends are shrinking! Of course, this applies to any dividends paying stock in the US, such Microsoft, Walmart and Intel. Noobie investors, take note!