Asked by Anonymous
Asked on 16 Oct 2018
Hi! Was just reading this article: https://blog.seedly.sg/why-you-should-buy-a-low-cost-etf/ that talks about expense ratios. And STI ETF's was stated to be 0.35%. If that's the case, given that the fee charged by POSB Invest-Saver is 1%, isn't that considered very expensive in comparison? As a fresh grad investing $200-$300 a month, what's the lowest fee way of purchasing (1) STI ETF and (2) Global ETFs? What's a good yardstick for what "low cost fees" are?
Yes haha you are completely 100% correct. :) The 1% may seem like alot.
However, the short story here is whether you are investing an enough amount to make your transaction fee low enough below 1%. For example with a typical brokerage, if you were to transact every month on your own... it would cost you between $10 to $25 for every trade. haha Means that you will need to invest alot more each month. $200 to $300 won't cut it :)
For the $10 to $25 fee to make sense, it would mean that you will need to invest $1000 or $2500 every month. (because if you work backwards this is 1%) hahaha. Probably you will not be able to have enough left to eat or drink properly. So the other way would be to do a lump sum investment.
To give you a further understanding here: you can read this.
For the STI ETF, there are two main ways you can buy:
1) Lump sum Investment (LSI)
You can do this by using your brokerage account. Compare the lowest fees here. It’s usually between $10 to $25)
Example: With DBS Vickers as the brokerage account ($25 per transaction)
2) Dollar Cost Average (DCA)
This option is actually simpler to setup compared the above method, primarily due to the idea that you won’t need a CDP account. The bank holds these funds on your behalf. You can also refer here to a table where we compare the different providers with different fees.
Example: With POSB Invest-Saver buying the NIKKO AM STI ETF
Top Contributor (Feb)
Expense ratio is basically all the fees the fund house use to manage the ETF in a given year, and it is different from the commission fee / sales charge of 1% levied by POSB when you buy into the ETF.
There are actually 2 STI ETFs available to purchase, one by Nikko AM which you can purchase via POSB's Invest Saver programme, and the other by State Street. Maybank KE's Monthly Investment Plan offers access to both ETFs from S$100 a month, and also charges 1%. Both POSB and Maybank will offer the cheapest way to buy into the STI ETF.
For global ETFs, if you can access Interactive Brokers or TD Ameritrade, these will offer the lowest commission for access to US Market where you can find a lot of ETFs. Only thing is the 30% withholding tax for dividends paid out by these. For me, I'm paying USD$0.015 per share or minimum USD$5 when I buy US shares using my TD Ameritrade account. This is like my yardstick for low cost.
Hope the above helps.