I have reasons to believe that Australians aren’t as susceptible to scams as Canadians are.
Maybe they’re smarter than we are. Or maybe they’ll just tell a con man where to go (with a beer in hand) while a Canadian politely asks the charlatan to come back when the owner of the house is home. Then when he does come back, they hide behind the couch. Unless the Canadian plays hockey. Or watches a lot of hockey games. Then it’s different. Watch out con man. OK—I won’t get into that.
The average Canadian is, to put it euphemistically, polite. And the average Aussie, to use a euphemism again, is a tad more assertive. I think that’s the reason that Vanguard set up shop in Australia to sell low cost index funds, while the U.S. index company behemoth gave its northern neighbours a pass. Canadians, after all, pay the highest mutual fund expenses in the world. And they probably smile while paying them. Don’t you wish everyone in Canada played hockey?
When a financial advisor tells a financially educated Aussie that he can pick winning mutual funds that will beat the markets, the Aussie likely asks, “How?”
And when the advisor tells the Aussie that he can name the next 5 year’s of Melbourne Cup winners by naming the past 15 winners, the salesperson had better pack his briefcase and head for the back of the black stump.
It makes sense to the financially uneducated when an advisor says, “This fund has a really good track record. We should buy it.”
If you want to practically ensure that you’ll do badly as an investor, pick funds with the best, past track records. Whether you believe that stock picking is based on random luck (the efficient market theory) or whether you understand that a good performance record is a kiss of death (fresh excess money makes it unwieldy), the bottom line is this:
Nobody has a proven method for picking actively managed funds that can beat the indexes—ahead of time.
Australians in Singapore can give the expensive, silly forecasting game a miss if they want to add wealth to their own portfolios, while scrimping on their charitable donations to the financial service industry.
Here are the steps they 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:
- EWA = Australian 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 Australian stock index (EWA) and the remaining portion in the world stock market index(VT). If the Australian is eventually going to go back home, at some point, they may prefer to have the bulk of their money in Aussie dollars, which is why they may want to consider having a full 50% of their money in the Australian 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 Australian stock index (EWA) you want to look up the price here http://finance.yahoo.com/q?s=ewa
So if the price of the Australian stock index is $25, and if you’re investing $3000, then you divide $3000 by $25 to see that you can buy 120 shares of the bond index. Just to be safe, when placing your order, make it out for 110 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:
1. The market you’d be choosing is “U.S.”, as you can see by the first line. It’s an Australian stock index, but you’ll be buying it from a U.S. supermarket.
2. You’d place an order to “buy” as you can see by the second line
3. The quantity is the number of shares you’re ordering
4. The symbol for the Australian stock index is EWA
5. And the order type is a “Market Order”
6. 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 Aussie 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.
In lovely Aussie style, you’ll hammer the grubby hands of the financial service industry out of your piggy bank.
