“The investment business is a giant scam. Most people think they can find fund managers who can outperform, but most people are wrong. You should simply hold index funds. No doubt about it.” Harvard University’s Endowment Fund leader, Jack Meyer
British expatriates in Singapore are finding a way to bi-pass expensive financial services. They’re figuring out how to invest cheaply and simply with low cost index funds:
- It’s the method endorsed by Warren Buffett
- It’s the method endorsed by a slew of Economic Noble Laureates
- It’s the method endorsed by Charles Schwab, (the owner of the world’s biggest brokerage)
- It’s the method endorsed by a myriad of Ivy League Financial professors, ranging from Yale University’s David Swensen to Princeton’s Burton Malkiel.
Every financial study done comparing the long term results of actively managed mutual funds (which most people are sold) to low cost index funds (which financial service companies dislike) reveals that over a lengthy period of time, the odds of success are far better with low cost indexes.
Most financial service companies break the golden rule of investing—failing to keep fees low.
They sell actively managed investment products that are better for the firm they represent, but less effective for investors. Buying actively managed funds with high expense ratios and sales charges, like those offered at FundSupermart.com , Friends Provident or Zurich International ensures a far lower likelihood of success. It might make your salesperson/advisor happy, but you could be crying in your oatmeal, years from now.
Sadly, despite overwhelming evidence, most financial advisors recommend actively managed mutual funds and unit trusts—because it helps them make their own Mercedes payments.
…read my post
After sales fees and advisory costs, their long term odds of beating a diversified indexed account are slimmer than a goldfish’s odds in a tank of Piranhas.
So how can a British expatriate buy indexes in Singapore?
First, a warning: There are companies here selling index funds, but they charge unreasonable fees ensuring the mathematical likelihood of only making half of what you deserve. The industry loves high fees. Investors should embrace low fees. … read my post
Here are the steps you can take to beat the professionals at their own expensive game
- Open a discount brokerage account at DBS Vickers, and tell them that you’d like the option to trade stocks from the Singapore, New York and Canadian stock markets. Don’t worry. You won’t have to become a stock trader. This is just the supermarket you’ll be buying your indexes from.
- When you make indexed purchases from this account (the products you’ll buy are actually called ETFs) you’ll need to do one of two things:
- Transfer money to the account first
- OR set the account up so that any purchase request sends money directly from your regular DBS account, straight to DBS Vickers, to cover the purchase.
These are the ticker symbols you’ll need if you want a diversified account of indexes, much like the global couch potato portfolio:
- EWU = British Stock Market Index
- VT = Total World stock market index (including U.S, European, Emerging markets indexes)
- ISHG = International Government Treasury Bond index (including an array of first world country government bonds)
But how much in each?
Long term, it’s better to be consistent, rather than trying to dance around, following market based news, and trying to figure out which index is going to do better over the short term. Studies show this to generally be a loser’s game. Establish your allocation, and stick to it.
Here’s a sample for a 40 year old investor:
30-40% of their money in the International Bond index (ISHG) with 50% of the portfolio in the British stock index (EWU) and the remaining portion in the world stock market index (VT). If a British citizen is eventually going to go back home, at some point, they may prefer to have the bulk of their money in British pounds, which is why they may want to consider having a full 50% of their stock market money in the British stock market index.
Making the purchases
You’ll need to figure out what price each of these indexes (ETFs) is trading at so you’ll know how much to buy when you place your order.
Going with ETFs, you’ll want to make sure that you’re investing at least $3000 at a time. After all, it costs roughly $25 to make a single purchase, so it might as well be worthwhile.
If you were going to buy the British stock index (EWU) you’d want to look up the price here.
So if the price of the British stock index is $17, and if you’re investing $3000, then you divide $3000 by $17 to see that you can buy 176 shares of the index. Just to be safe, when placing your order, make it out for 170 shares, in case the price goes up the next day. You need to have enough money for your purchase, and the price you pay could be higher or lower than what you see. It will be based on the market price at the time your order goes through.
Your order entry will look like this:
- The market you’d be choosing is “U.S.”, as you can see by the first line. It’s a British stock index, but you’ll be buying it from a U.S. supermarket.
- You’d place an order to “buy” as you can see by the second line
- The quantity is the number of shares you’re ordering
- The symbol for the British Stock Index is EWU
- And the order type is a “Market Order”
- You’d then plug in your trading password and press submit.
Commissions for purchases and sales are roughly $25. If you make a single purchase of $100,000, you could pay close to $100 for the purchase commission, but generally, purchases below $40,000 (approximately) tend to be about $25 per buy or sell.
If you’re investing every quarter or every month, make sure that it’s at least $3000 at a time, so you don’t pay DBS too much in commissions, relative to your purchases.
And while you’re making your purchases each month, allow your purchases to rebalance your portfolio back to the originally desired allocation. For example, if your world index has underperformed the others, for that month, then buy the world index. If your British index has underperformed for that month, then buy that one. By bolstering up the laggards, you’ll ensure that you invest, using Warren Buffett’s motto:
Be greedy when others are fearful.