Cheapest Way to Invest (Part 2)

Last month, I wrote a very quick and dirty post on the Cheapest Way to Invest. This post has also been published at CPF's IM$avvy site.

In the previous post, I outlined that the cheapest way to invest is probably a "wrong" question. Instead, the question should be posed as follows:

1. What investment incurs the lowest brokerage charges, sales charge or commissions?

2. What is the cheapest form of investment (cheapest in the sense of lowest monthly premium committment or lowest initial capital outlay)?

Lowest brokerage charges, Sales charges or commissions

There is no easy solution to finding a good investment with low brokerage charges, sales charges or commissions. Afterall, people who sell investment products need a way to make their living and very often, these people are compensated based on the amount that the customer invests.

As a rough guideline, the charges one should expect to pay for investing in shares should be around a minimum of $20 to $30 per trade (depending on the size of the trade). If the amount you are buying or selling is larger, the brokerage charges are actually a percentage of the amount. For lowest brokerage charges, do shop around in Singapore for the lowest charges. Carrying out the trades by yourself through the internet is often cheaper than getting the broker to carry out the trade for you.

For investments into funds (e.g. Fundsupermart or investment linked plans), the norm is a 5% sales charge. Over the years this has been reduced and some funds are now offering sales charges for as low as 1% or even promotional rates of 0.2%. One needs to understand that the sales charge is the difference between the bid-offer spread of the fund prices. Some platforms or companies also charge an annual ongoing fee based on your investment amount. This means that the larger your investment amount, the larger the ongoing fee. Take for example an investment of $10,000 into a fund with a 5% sales charge. That basically means that your investment amount is reduced to $9,500 almost immediately upon investing into the fund.

Commissions are paid out to insurance agents/financial consultants/relationship managers/financial planners/brokers/etc whenever they make a sale of an insurance product. In today's context, many investment products are now tied in with insurance and the insurance companies pay a distribution fee to the agents who manage to sell the products to customers. This distribution fee is the commissions that are paid out as wages/commissions to the various levels of people in the insurance company.

Whatever the case, it is always good to source around for the lowest charges. However, it is also important to note that such charges are hard to escape from and there will definitely be charges to pay. Take a look at the Benefit Illustration for products from insurance companies to make the comparison.

Lowest Monthly Premiums or Lowest Initial Capital Outlay

Based on what I know, $100 is usually the lowest monthly premium for any regular investing/savings plan. However, it is not uncommon to see endowment savings plans that allow you to commit as little as $50 per month. Philips also has a ShareBuilders Plan that allows you to buy certain blue-chip stocks on SGX for as little as $100 per month.

For investment into funds, the usual minimum investment amount should be $1000 though it is not uncommon for some to have investment amounts of $5000.

Unregulated Investments

MAS does not regulate certain investment products so the consumer has to beware when investing in the following:

1. Land Banking

2. Oil pods

3. Wine Investments

Others like ponzi schemes and multi-level marketing are also investments which consumers should take note of. I did not include these products into this post because I feel that they are not really worth the risk. You make your own call =)

New Look For This Site

Hi People!

I finally did the thing that I have been procrastinating for the longest time. I gave this site an overhaul using the latest design features from Blogger.

I have always been afraid of tinkering about with the design because I was afraid that it might corrupt my files and stuff. Silly me!

Anyway, since I had some time to burn today, I just fiddled around with Blogger's latest design tab functions and chose the simplest design for my blog. I think the new look is much better than the previous look.

For your info, to comment on this blog now, you will have to click the comments link that is located near the title of the post.

Hope you like the new layout of this blog. Do let me know if there is anything that you feel needs to be tweaked to make this blog look better.

Best regards,

FF

Recycling the Singapore Way - Karang Guni

Very often, we get to hear the sounds of the beeping of a bicycle-like horn around various HDB estates in Singapore. The unmistakable sound of that horn is actually the "recycling" man making his rounds around the blocks to collect any old newspapers, household gadgets or simply anything that can be recycled. We call them the Karang Guni man though I am not certain what it means exactly in Malay. All I know is that if you offer him your old newspapers, he will offer you some loose change based on the weight of the old newspapers you have sold him.

Just recently, I heard the sound of the karang guni man's horn beeping across the corridor and managed to catch his attention that I had some old newspapers that I wanted to "sell" him. In the past few months, the wife had been throwing away the old newspapers down the rubbish chute because she had no idea what to do with them.

After bringing out all the newspapers, the man tied them up with a pink rafia string and proceeded to weigh them. He announced it as "8 Kilos" and then handed me 80 cents, explaining that I get 10 cents for each kilo of newspapers.

What he did next was most unexpected. He whipped out a name card from his wallet and handed it over to me. He told me that I could call the number on that name card whenever I had something that I wanted to get rid off.

Part of the name card reads:

Specialise in collection of Old Clothing, Used/defective Home Appliances, Television, Mobile Phone, Old News Paper and Others. We also provide Removal & Transportation services.

A change of the times and definitely Uniquely Singapore! Shows how much the karang guni man has progressed since yester year.

How much for shampoo that cures hair loss?

How much will you pay for a bottle of shampoo that is supposed to be able to cure and prevent hair loss?

I was sitting in a hairdresser's chair recently enjoying my usual haircut when the hairdresser started chatting me up. After the usual pleasantries, she highlighted to me in a very light hearted manner that my hair or scalp was slightly oily.

(I have had oily hair for many years and I always thought that it was because I used too much gel when I was younger to style my hair. I switched to hair wax which was supposedly better but that did not stop my hair from being oily.)

After highlighting that fact, she went on to give me a diagnosis of the male pattern hair loss that I was facing and asked me questions about whether I had experience hair loss, receding hair line etc..

All this hit home quite hard as I have been pretty conscious about the fact that my hair line has indeed been creeping up my forehead and I looked a little bald from certain angles. Even some friends have told me that I looked like a fat and balding uncle on facebook (thanks to candid and unflattering pictures of me that end up on facebook without me knowing...)

That is very sad. To be 28 and going on to 29 and to look bald is not a thought that I like entertaining very much. But everytime when I look in the mirror, I am certain that my hair seems to be getting much thinner and I will one day lose all my hair.

After much sales talk, she managed to convince me to buy a bottle of shampoo for $22. It has some teatree oil extract which is supposed to be good to keep my scalp less oily. I willingly parted with the money as I believe prevention is better than cure and I am willing to spend money to prevent myself from going bald. Her sales talk that preyed on my fear of losing hair was also really good.

After a few weeks of using the product, my wife has commented that my hair is no longer oily and is smooth and nice to run her fingers through. I am still not sure about the anti-hairloss function of the shampoo and can only wait it out for a few more years to see whether it is really effective.

Hopefully this will turn out to be one of my better investments.

Median Income to Rise by 2020

I haven't had much to write about in the couple of days. Today, when I turned to the front page of the newspapers, I saw the headlines that states that average Singaporeans can expect their incomes to rise from the current median income of $2400 per month to $3,100 per month.

The funny thing about how I read news articles is not on what they report but rather on certain aspects that probably interests noone else but me. In reading this news article, I was more interested in why the goal was to raise the median income instead of the average/mean income. The 2nd thought that formed in my head was this: Will an average Singaporean earn more or less than the median income of $3,100 per month?

The difference between median and mean

This is probably secondary school maths but I guess there is a slight difference between median and mean (or average) when used in statistics. Generally, it depends on the data set and whether the mean or the median gives you the more accurate representation of what "average" really means.

When data is symmetrically distributed, the mean is a good way of calculating the average income. The mean is simple obtained by adding all incomes together divided by the total population. However, when data is skewed either to the left or the right, it might be better to use the median income to give a more accurate reflection of what "average" is in Singapore. So the question that is left to be answered is whether the income distribution curve is skewed to the left or the right. (Of course, to measure income that is not symmetrical, the median is a much better way that the mean).

So there is the tricky part if you say that the "average Singaporean can expect his income to rise because the median income is expected to rise." Here, what it means is that median income actually represents the "average" Singaporean's income more truthfully.

So I basically answered my two thoughts in this posting.

1. To measure income which is often not symmetrically distributed, we use median income which reflects the average income much better.

2. An average Singaporean can expect to earn the median income of $3,100 in ten years time and not more or less.

Other questions that will probably go unanswered are these:

1. Is the mean income in Singapore higher or lower than the median income?
2. Which one is harder for the government to achieve? Increasing the mean income or the median income?

Cheapest Way to Invest

I 0ften get questions from readers of my blog asking what is the cheapest way to invest.

This question is abit baffling to me sometimes as I do not really understand what exactly they are asking about. I am supposing that the question is actually twofold:

1. What investment incurs the lowest brokerage charges, sales charge or commissions?
2. What is the cheapest form of investment (cheapest in the sense of lowest monthly premium committment or lowest initial capital outlay)?

So the question on what is the cheapest way to invest perhaps is a question on what is the lowest amount of money one can invest in and at the same time incur very low charges or fees that could potentially "eat" into the initial investment amount.

Well, if you ask me, the lowest amount of money one can invest is actually in shares. This is considering the fact that you can buy like 10 shares of SingTel which together with brokerage charges will cost you less than a $100. But that is of course not very efficient as the brokerage charges will make up more than 50% of your initial investment.

For example, a person buys 10 shares of SingTel and the brokerage charges is for example $25 per trade.

If SingTel is trading at $3.00, 10 shares of Sintel will cost $30 while the brokerage charges will make the total investment cost $55! What this basically mean is that for buying 10 shares of SingTel, the investor has paid $55 which brings the average cost of purchase per share to $5.50 compared to $3.00.

What I have shown in the example above is just to show that if you put in a low amount of investment capital, it might be cheap and expensive at the same time. Cheap in the sense that you only required $55 to invest but expensive because the commissions and charges make up a huge percentage of your initial capital outlay.

Well, to cut the whole story short, one needs to balance both the intial capital outlay as well as the charges incurred. I hope to expand on this article in the near future...

So what is the cheapest way to invest? Any tips from anyone?

Flooding in Singapore...Again..

I just read the news and it confirmed my fears. Singapore was flooded again today. Apparently, flash floods hit certain areas and trees also fell at certain places.

I am not surprised. Afterall, when I went to buy my breakfast, I saw a blowhole!

Water was gushing out from a drain cover along the walking pavement and because of the pressure or something, water spurted out like a mini blowhole every few seconds.

What an interesting sight!

Hopefully none of my readers here got caught in the flood while going to work.