How Singaporean Children Can Lead The Investment Pack

andrew hallam

andrew hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (Wiley 2011) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use.

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33 Responses

  1. Rahim says:

    Another great post, Andrew. The compounding effect is certainly your best friend when it comes to long-term saving and investing.

    I'm trying to take advantage of compounding, but I have a silly question. I'm 33 and have 2 accounts with index mutual funds: 1) retirement (RRSP), and 2) investment (TFSA). Am I losing out on the compounding effect by having 2 separate accounts vs. a consolidated one that compounds with a larger amount? Or is the discrepancy minimal? Ideally I would have 1 account but I'm keeping the investment/TFSA account so that I can potentially withdraw money before retirement. I'm assuming most people invest this way (long-term vs. shorter term), but I'm wondering if this is to their disadvantage in terms of compounding.

    Thanks, as always,

    –Rahim

    • Hi Rahim,

      There's no disadvantage to what you're doing. An analogical question would be this: Are you missing out on compounding when a single portfolio is comprised of 3 ETFSs versus just 1 ETF? Not to worry Rahim, you have set up two very intelligent accounts for different purposes (slightly) and together, they will compound with the same power, as if they were one.

      Cheers,

      Andrew

  2. Blues says:

    Hi Andrew

    I agreed with your suggestions. However, I think it will be a better option for the parents to invest in ETF and hold in trust on behalf of the child instead of going with the higher cost unit trust option.

    Cheers

  3. derek says:

    Hi Andrew

    Your advice on compounding is true but I wonder how compounding works in your example. If I buy a fund worth $1000, 5 years later if it is worth $1200, I gain $200. However, if it drops to $800, I would have lost $200. This is purely capital gain/loss based on the performance of the fund. I fail to see the effects of compounding. May be I am missing something here.

    Thanks.

    Derek

    • Derek,

      Investment performances fluctuate. The U.S. market, for example, has averaged (with dividends reinvested) roughly 9.5 percent per year over the past 90 years. This doesn't mean that there weren't periods where it lost 40% in a given year. These losses (which aren't really "losses" unless you sell) are offset by periods where it gained big. The global markets, for example, dropped about 40% in 2008/2009, but gained roughly 130 percent since their low. These fluctuations, however, frighten people. As a result, many don't earn the compounding returns they should, because they often seal in losses by selling low, and then buying high after the markets have recovered.

      And when markets fall, the reinvestment of dividends becomes even more powerful, as dividends purchase shares at lower costs.

      Note the link to the U.S. market here: http://quotes.morningstar.com/fund/vtsmx/f?t=vtsm

      You can see that the markets dropped and rose during the last decade. But it still turned $10,000 into more than $22,000. If you want to know what this equates to, as a compounding return, you could play with the compound interest calculator at http://www.moneychimp.com.

      You'll see that growth from $10,000 to north of $22,000 equated to an 8.4% compounding annual return. It doesn't come like a smooth ride, but over a 30 year period (as history has indicated) global markets have averaged a compounded return between 8-10% per year.

      Cheers,

      Andrew

  4. Peony says:

    i am a Singaporean. i do understand your principle about allocating between the global mkt index and sg index. But how do i manage the risk of the USD on my purchases of the global mkt indices? USD has weakened greatly against SGD from a high of 1.6 to now only 1.25. how do we manage this exchange risk ?

  5. Peony says:

    sorry, can i ask also, why do you recommend the above sg stock market funds, and not directly just invest in the 2 ETFs through the broker?

    • Hi Peony,

      The above example provides a simple way for parents to get their kids investing early through beneficiary accounts. Through a broker, such purchases in Singapore, on behalf of children, are much tougher to make. There are a greater number of regulations in Singapore for ETF accounts. That said, when the child is older, it would be the best option.

      As for the USD exposure, if you are investing in a world index, you will take roughly a 40% US dollar component within that index because the U.S. global capitalization is roughly 40% of global cap. But if you buy a world index that excludes the U.S. (which you could do) you won't take USD currency exposure risk, but potentially take higher risk by not having exposure to 40% of the world's capital markets.

      Cheers,

      Andrew

  6. John Er says:

    HI Andrew,

    Greeting, I from Malaysia, 36 years old and i have extremely intend invest in ETF market, but how do i start, where can i open account for ETF in Malaysia??

    Can I open account in Vanguard if I from Malaysia?? which ETF suitable for me to do a investment.

    Please help and hope can hear you soon

    Thank You

    • Hi John,

      You could open an account with DBS Vickers, in Singapore. Many non Singaporean residents have done this. You would call the bank and ask to set up a brokerage account. Don't take no for an answer. Sometimes, you may find a representative who doesn't think it's possible, and they might try to tell you otherwise. But call back. It's done all the time. Once the account is open, you could transfer your money to Singapore and start building an account with ETFs.

      Cheers,

      Andrew

  7. Ajay Deshpande says:

    Hello Andrew,

    I was reading your article on buying Index funds and bonds , based on the age allocation rule you follow.

    How do you know when to enter the market to purchase a Index fund or Bond index ?

    Or do you follow a rule of Buy when everyone sells and Sell when everyone buys ?

    I needed your advice on building a portfolio for retirement based on Index funds and how one should manage them over a period of time.

    Thanks in advance for your advice.

    AKD

    • Hi Ajay,

      You should start building a diversified portfolio as soon as you have the money. I don't believe in market timing, but I do believe in maximizing your time in the stock and bond markets.

      Cheers,

      Andrew

  8. Joe says:

    Hi Andrew! Another great post! I get that a child doesn't need bonds, but what if a 50y.o. Singaporean adult was investing? What portfolio would you recommend? I'm thinking (after reading your blog):

    25% DWS Singapore Equity

    25% VT

    50% ISHG

    What do you think? She has a big lump (about 125K) sum to invest.

    Cheers! Joe

  9. Joe says:

    Never mind andrew, just found your other post that exactly answers my question!: http://andrewhallam.com/2010/10/singaporeans-inve

  10. Brendan says:

    Hi Andrew,

    Firstly I'd just like to say thanks for sharing your knowledge, and writing a great book. Just finished it, and it's given me the (much needed!) inspiration to take control of my finances.

    Firstly, I've just sent off an application for for my a Beneficiary Account for my 20 month old son . Get 'em started early eh!? However one minor question is why this is better than just a separate index fund … considering the fees involved. I noted in previous posts (and the book), that you didn't really recommend Fundsupermart because of the fees incurred.

    Secondly (and I know this has been discussed in great detail already), I have a Vista fund *sigh*.

    Quickly … I've got $36k paid in since 2009, but stopped payments after 18 months. The redemption amount I've been given is approx $5k.

    I am torn between cutting my losses, or continuing to invest the bare minimum for the remaining 20 years. I'm sure it will grow to some extent …. but I'm struggling to determine whether re-investing the redemption amount into my index fund would yield better returns in the long run.

    Thanks again for your invaluable insights.

    • Hi Brendan,

      I'm glad you liked the book. To clarify your question, what do you mean by this:

      "one minor question is why this is better than just a separate index fund … considering the fees involved."

      Your child, if living in Singapore, has few custodial options for their own account. Yes, fundsupermart fees are high, but the options are otherwise limited. Could you just put an ETF in your personal account and assume that it's your child's, and give them the proceeds at a certain point? I suppose you could do that.

      As for the insurance linked investment plan you're in, you should do the long term math. My guess is this: selling and taking the hit will be more beneficial over the long term. But it will also be like a kick to the groin. Your personal feelings about it will likely play into the equation as well. It would hurt to lose so much money, short term.

      • Brendan says:

        Yes, to clarify I did just wonder if there was any specific benefit to using funsupermarket as opposed to an EFT in my account, but ultimately for his benefit.

        As for Vista … I'll have to sit down and consider the long term math. Using your analogy … I guess the pain in my groin would ease over time!

        Thanks for your help!!

        • If you have the account up and running, Brendan, buying that ETF would be a good option. I have friends that have done the same for their kids, with the world stock market ETF (VT). It provides nice global equity diversification at a very low price.

          Cheers,

          Andrew

  11. Prats says:

    Hi Andrew,my kids are 8 year old and i am in a dilemma to decide weather to buy education insurance plan (avaiable from manulife,ntuc etc)for my twins or buy mutual funds in singapore as I am singapore PR.
    Greatly appreciate if you could advice me on this as my intention is to save for their university education.If your advice is to go for mutual fund kindly provide detailed info for me to proceed.
    Thanks and regards
    PratasS

    • Hi Prats,

      I can only tell you that most people I know invest educational money for their children. They ensure that the money is diversified, balanced between stocks and bonds, and low cost. The article above has some suggestions. And while your child gets closer to their university date, you may want to increase the fixed income portion (ie. cash or bonds) to ensure that they aren’t exposed to the stock market’s gyrations when you may need the money.

  12. stephanie says:

    Hi Andrew,

    V grateful to u for sharing this wonderful book. V glad to learn that I can generate passive income and grow my wealth thru ETF.

    We have realised losses in stocks n ILP as we purchased at the peak around 2007 and 2008.

    V sad. Hard earned $ all gone !

    We are in mid 30s.

    Shd we treat CPF (amount that I can invest) and Cash as a whole portfolio ?

    Or should we not invest using CPF as you have mentioned before and bond is also currently 2+ % ( abt the same as CPF interest rate). But CPF can only be use for buying property or retirement.

    By the way, CPF can only buy A35 and ES3.

    Scenario 1
    =========
    CPF 40k
    Cash $0

    Scenario 2
    =========
    CPF 10k
    Cash 70k

    If using this percentage

    A35- 35%
    ES3- 25%
    VT- 20%
    VEA- 20%

    For both scenarios , Is it advisable to use CPF to buy ES3 ?

    Since we can’t rebalance for CPF and it can only be used for property purchases and retirement.

    For scenario 1, we save till 3k to invest in the above percentage and rebalance it accordingly. OK ?

    For scenario 2, Use CPF to buy ES3 which is ard 12.5% and the other 12.5% use cash to buy.

    As for the remaining ETF, use cash to buy.

    For rebalancing, just use Cash to do it. OK ?

    Do you advise yearly rebalancing for this 2 scenarios ?

    When do we need to do monthly rebalancing ?

    I have a baby that is 10 months old.

    Great to knw that i can start him soon.

    Thanks a lot.

    Hope to hear from u soon.

  13. PJ says:

    Hi Andrew
    Child Funds

    I am British expat S.E. Asian based in Thailand and no plans to return to UK, I have Singapore DBS Vickers trading account (only just opened as had some problems, another story) and US Schwab account (will be changing to DBS Vickers once set up due to inheritance tax concerns- following posts on transfers intently)

    I am searching for an investment plan/ ETF’s such as TOTAL stock market fund or similar for my niece (2 years old Australian) and (own future children) to pay or help pay for school/ UNI fees, could you recommend any for lump sum investment starting at $25,000 USD and intermittent top up for 15 years or so that I could put in the childs / Joint names (partners & mine plus childs) and that would be maintained upon my demise potentially without further top up.

    I have read up on “school funds” but remain concerned regarding management fees and potential difficulties in power of attorney, any inheritance tax implications considering I was the primary investor etc. Also considering my demise, what is the normal process if a fund management company decides to close a certain fund, would they just sell the shares and market rate and credit yours/ beneficiary account.

    All too complicated for me, just considering best ways to limit paperwork / involvement for my partner and ensure some financial security at a given time in the future for immediate family.

    Any thoughts from yourself or posters would be welcomed

    Cheers
    PJ

  14. Oh WJ says:

    Hi Andrew,

    Im a college student. I read your blog posts and book recently and also went through some of the recommended books for beginners. I noticed that they are mostly based in US and hence I’m falling back on the specific examples you have recommended for Singaporean Investors.

    As a young investor with limited starting capital, I find it difficult to include Vanguard Total World Stock ETF into my portfolio due the the high price per share. However, on reading your this post, I noticed your recommendation of The Infinity Global Stock Index. Despite the higher expense ratio that it carries, it is much cheaper and more possible for me to include this in my portfolio.

    Would like to ask would it be very much different if I were to use “The Infinity Global Stock Index” instead of “Vanguard Total World Stock ETF” as my international exposure? Would this be available through DBS Vickers as well?

    Regards,
    WJ

    • Hi Oh Wj,

      As a college student in Singapore, you will get much more out of my second book, The Global Expatriate’s Guide To Investing. Singaporeans would benefit greatly from it.

      For starters, the price of an indexed unit does not determine whether it is expensive or cheap. If you buy a global index, and one is priced at $1000 and another at $1, they are the same price. If you have $1000 to spend, whether you buy something with 1000 one dollar bills, or a single $1000 bill, you are paying the same price. There’s much more for you to know, so I recommend the book. Here’s a link to the book, at Kinokunyia: https://singapore.kinokuniya.com/bw/9781119020981

      Cheers,
      Andrew

  15. Tony says:

    Hi Andrew,

    As one of the many readers of your books, thanks for simplifying things and sharing your experience and knowledge.
    I understand you have a huge number or responses on your site, so thanks in advance.

    I feel better prepared and am about to make the leap to my first investment. Trying to not go OTT with info (but I guess it’s required to build a better picture for advice):

    I’m a 30yo UK citizen, working in SG.
    Looking to diversify:
    -index funds in SG/UK/USA (25/25/20) total 70%
    -government bond index 30% (would it be worth splitting this as above also SG/UK/USA 10/10/10?)

    My question: as the index funds are currently climbing, would it be better for me to start by leaning more on bonds for now and reassess in later months, whether to rebalance portfolio accordingly.

    Thanks in advance and once again thanks sharing your knowledge,
    Tony

  16. Alexander says:

    Dear Andrew,

    What is the best platform or broker or bank for investing in index and other funds in Singapore? I am looking for low cost platform which will act as trustworthy custodian for the earnings even if I should move out of Singapore, and would still allow me to manage the funds from abroad etc.

    I was approached by several wealth management institutes which either asked for big commitments of x amount for 10 years or more, or otherwise high costs like 5% to get started and 2% per year. I also talked to broker Kay Hian who offer platform for trading, but it does not seem include Index Funds. Additionally, they said they could buy for example a Vanguard index fund for me, but would charge 0.5% buy fee, and that I need to take some certification course first because its a derivative.

    Advice much appreciated.

  17. Josh says:

    Hi Andrew,

    in your website, How Singaporean Children Can Lead The Investment Pack, you talk about global index. And in that section you talked about the The Infinity Global Stock Index and in your book you talked about Vanguard index. I am currently looking at this three global index, The Infinity Global Stock Index, Vanguard total world stock (VT) and Vanguard FTSE all world UCITS ETF (VWRD (USD)). Which in your opinion is a better option? (considering tax etc..)

    Please advice.
    Thanks!

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