Sunday, November 25, 2012

The right investment vehicle for retail investors - ETF

It is an open secret in the fund management industry that most fund managers under-perform over the long-term (around 5 years). Very few people who are in the business of selling investment-linked products will reveal this embarrassing secret to their clients. A simple search on Google will show the facts. You can always verify next time someone persuades you to buy an investment fund. Don't blame the salesmen if they are not forthcoming because they cannot sell if all the embarrassing secrets are out.

Two years ago, I wrote about relying on fund managers for our investments. What I wrote then still stands today. I still think the average IQ of fund managers and the bottom 5% of hedge fund managers to be much higher than mine. However, it is puzzling why intelligent people under-perform as a group. A recent brief exchange with a fund manager explains the reason. Institutional investors form the bulk of the transactions, so they are the average. Add in their management fees, so they naturally under-perform the average. If we cannot rely on fund managers who are far more intelligent with much more time and resources on their hands than us, then how? What if there is an investment vehicle that outperforms most fund managers but charges a much lower fee? These are index funds and ETFs. The ETFs referred to in this article are country indices which are baskets of blue chips in the respective countries. So, if you want to invest in Singapore stocks, the right ETF is an ETF that tracks the Straits Times Index.

Cheaper and better than active fund managers, ETFs are a no-brainer for retail investors. DIY investors who pick their own stocks should review their trading records and honestly self-assess if they outperform the index ETFs. If not, index ETFs have a rightful place in their portfolio. Even for skilful ones who manage to beat the index, they can still consider ETFs if they decide to spend less time on investments and more time on their family or take on more meaningful enterprises like starting their own business.

I have yet to encounter a better writer than Andrew Hallam on ETFs and index funds in Singapore's context. Since my writings cannot hold a candle to his, please read his articles on ETFs and index funds below. 

Among ETFs and index funds, there are good and bad ones. It is for this reason that I opened a US brokerage account just to buy ETFs in the US stock exchanges. On the local exchange, the STI ETF will suit most retail investors who want exposure to Singapore stocks. I will discuss more about this in a later article.

Sunday, November 4, 2012

Update on my favourite life insurance plan (Aviva SAF Group Term Life) for Singaporeans

Last year, I wrote about my favorite life insurance (Aviva SAF Group Term Life) for Singaporeans. It is still my favorite today and I just got an update that the maximum coverage allowable has been raised to SGD1 million. This will cost SGD1536.00 annually and I signed up for it with little hesitation. Based on my personal experience, I seldom need to pay the full premium each year because Aviva gives partial refund of the premium at their discretion.

For Singaporean NSmen with dependents, this is a no-brainer if the objective is to use minimum sum of money to provide maximum protection for the family. This plan is open only for NS men and I am not aware of other cheaper plans. Fortunately, the policy holder can buy protection for his spouse at even lower cost probably because the wife has no risk of death from military accidents. This is the only plan I know of that protects against military mishaps. Singaporeans who have been through NS will know that this risk is not really that low.

Much of what I wrote in my first article for this insurance plan still applies. So, I shall not repeat here.

By the way, I will bet very few insurance agents or fee-based financial advisers will recommend this product. This product is so value-for-money that there is hardly any room left to pay for commission. I do not get paid a single cent for recommending this product.

For more details, please refer to the Aviva brochure and judge for yourself.

PS: I do not collect any commission from Aviva. In fact, I have never collected any commission for my product reviews. Just a happy customer who wants to share with fellow Singaporeans on the kind of protection that they should have to protect their own family.