Asked on 12 Sep 2019
Hi! I’m currently using a DBS Multiplier account. Just started working since the beginning of the year. I would prefer to do dollar cost averaging due as compared to a lump sum investment upright as I barely worked for a year and my budget would be around $500 a month.
Hi Melissa, generally, I would advise you to consider the costs of investing before you start. Equities have a brokerage, etc which can add up to a significant cost and reduce your returns. I would try to achieve lower than 0.5% cost, which means that my equity transactions would be at least $5000 at a minimum.
Having said that, you can start to put away a war chest to prepare for deploying into equity, while participating in market movements through UT RSP, this two-pronged approach ensures that you can start to build an investment position while preparing for buying shares in future. As POEMS has no charges for UT, you may want to consider the platform for this. Some UTs have very respectable returns, beating ETFs over the long term. You can contact me if you need to open a POEMS account.
15 Sep 2019
Hi Melissa, I generally don’t recommend investing in unit trusts due to the high fees involved. Fees have one of the largest impacts on returns. What’s more, the higher fees you pay for unit trusts may not translate to better returns.
If you look at the chart below, you’ll see that despite having higher total expense ratios (TERs), the 10-year annualised return for these unit trusts wasn’t better than their comparative ETFs.
High TERs can substantially erode investment returns. If the TER was 1%, $100,000 invested at an annual return of 5% would be worth $324,000 after 30 years. If the TER was just 1% more (2% TER), your final investment value would drop to just $242,000.
When it comes to investing in equities, my preference is to invest in equity Exchange Traded Funds (ETFs) instead, for quick, easy diversification. ETFs allow you to invest in a large number of stocks through a single transaction. This built-in diversification protects your portfolio. If your portfolio is concentrated in just a few stocks, when one underperforms, it can drag down your whole portfolio.
A fuss-free way to start making dollar cost averaged investments into ETFs is through a digital wealth manager, as Tat Tian mentioned. You can consider Syfe – our portfolios are a combination of up to 25 ETFs for equities, bonds and gold.
You should be aware of the expense ratios for unit trusts which are known to be among the highest in the world. The fees eat into your returns. You are better off using the digital investment choices now available in Singapore with low minimum entry and low fees. www.squirrelSave.com.sg is one of them, Do browse the choices and all the best!
Comparing the transaction and fees, Robo-advisors are good alternatives if you are unable to store up $10,000 for a single buy trade of equity.
Unit trusts likely have higher annual fees compare to ETFs and Robo-advisors, but if the nett nett is better than the market ETFs, then it may make sense.
Look to build your emergency fund and get your insurance protection in place first before going into investments. Once that is done you can consider exploring what Tat Tian mentioned about going into Robo-advisories using DCA. I won't recommend UTs as well due to the fees involved. The impact of fees is well documented by sites like investment moats.
Alternatively, you can set aside your monthly budget to build a lump sum before deploying into the stock(s) of your choice when there's an opportunity to buy in at a low cost. This is to maximise the cost of acquisition. You need to do your research first though on knowing what to buy into and how it helps meet your investment objectives.
Personally, I feel that there is no viable pure equity counter DCA platform available in the marketplace, especially after Maybank KE exited this business. Until this platform makes a comeback consider the Robo-advisory route if you are not keen on doing much research.
Hope this helps and all the best.
For me, I would do dollar cost averaging in equities monthly.
Do it regularly and do not panic even when a Great Stock Correction/Recession comes.
Because we do not know how long a correction may last (the previous stock correction took only a month to go back)...
so DCA is ideal for us investors.
Do for the long run. We, women, are better in doing sensibly and ignoring the noises ;)