Sunday, March 29, 2009

How To Reduce Investment Expenses when doing Dollar Cost Averaging

" The shortest route to top quartile performance is to be in the bottom quartile of expense. " - John Bogle ( Founder of The Vanguard Group)

This post is to do a comparison in relation to investment expenses between Unit Trusts, ETFs through DBSV Cash Upfront and other brokerages and POEMS sharebuilders plan. In relation to sales charges, based on the spreadsheet done below, there is an optimal way to invest, so as to reduce charges or fees, based on the investment amount if one is to follow a monthly dollar cost averaging strategy.

Generally, dollar cost averaging means allocating a fixed amount of money into investments at regular intervals, so as to lower the average cost of the investment, since when share prices go up, less shares are bought and when share prices go down, more shares are bought. The other reasons for dollar cost averaging (DCA)include not having enough funds to buy a pricey blue chip company say, the minimum 1 lot DBS shares and so DCA allows one to slowly accumulate DBS shares. Other reasons includes a person not being savvy enough or having not enough time to monitor the market so as to "generally" time the market to enter.

The reason why we are comparing the said instruments is because these share a common trait, which is, they allow one to so call diversify their portfolios. Well, personally, SGDividends do not use any of this said instruments, that is Unit Trusts, Share Builders Plan or buy any ETFs, but oh well, to each his own.

For those who don't know what POEMs share builders plan below.

Read here about DBS Vickers Cash Upfront Trading Service

Ok so now that we have some background information on what the POEMS share builders plan and the DBS Vickers Cash Upfront Service is....let us compare! Do note that for the share builders plan, we are refering to the scenario where a person buys more than 2 different counters each month....since 2 or less counters is not really diversification....don't you think? Therefore, the handling fees is $10.70 instead of $6.42.

Also, do note that Share Builders Plan only allows one to buy certain Singapore listed shares.

Regarding ETFs, most of them allow one to buy in terms of 100 units or 10 units ( for example, DBS STI ETF 100) instead of a board lot size of 1000 units, so monthly regular DCA of $100 is still possible....

Commission Charges Sgdividendsteam sgdividends Comparison of commissions charges for different equity intruments in singaporeThis only analyses upfront charges when one buys , such as sales charge,handling fees and brokerage commission. It DOES NOT include GST, annual management fees,SGX access fees e.t.c

Ok some points to note. It is stated above that between the monthly investment amount of $100 - $700, unit trust is the cheapest. That's misleading addition to the sales charge above, there is an annual managment fee of generally 1.5%. In fact, SGDividends has been very sweet to the Unit Trust as we took the lowest sales charge of 1.5% among different UTs. Many UTs have sales charges of up to 5%.

ETFs generally have, in addition to the above sales charges, an annual fee of 0.28% - 0.3%. Also, one must pay brokerage fees when one liquidates this investment. Unit Trusts do not charge fees when it is liquidated. Having said that, ETF is still cheaper than Unit Trust.

For Poems ShareBuilder Plan, in addition to the above charges, there are compulsory unaviodable charges of $10.70 for corporate actions per counter. So, lately, with the recent spate of rights issuance by some bluechips company, there has been quite some expenses.......

So well, you decide for yourself which is the way to go...... and do note that expenses is just one single factor when investing as the performance of the underlying instrument through which ever means, Share Builders Plan, DBS Vickers Cash Upfront or Unit Trust..e.t.c is still the most important

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Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

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