When it comes to investing in Singapore investors have a lot of options to explore since our country is one of the leading financial centers in Asia. Experienced investors can choose to invest in a variety of stocks or bonds, directly on the Singapore Exchange (SGX).
Investors who prefer a more gradient approach can also invest through financial advisors, who typically recommend unit trusts, also known as investment funds for them to invest in. Some financial advisers recently, “robo-advisors” may also recommend investment in a portfolio of exchange-traded funds (ETF).
Unit trusts and ETFs are funds that pool money together from different investors on the investment fund manager on behalf of investors in assets that they believe make a return for investors.
Before you decide to park your money in a unit trust or ETF, it is important to first understand some of the main characteristics. Doing so can help you determine the right funds to invest in.
Each fund’s investment climate. This methodology should communicate the approach that fund managers will take investment decisions. For some funds, this can be something relatively simple, such as investment in shares of the largest 30 companies in a certain country or a certain area or follow some indicator.
Some funds may have their own investment philosophy and traditional such as stocks, activity-selection, or systematic strategies.
For example, dimensional financial advisors (DFA) investment manager that believes that the market is already able to do what they do best – reflect all available information in prices. The Ministry of Foreign Affairs takes the investment approach and focus their efforts on creating more value for its customers through the evidence and based on building a conservative, delivered in cost-effectiveness. Regularly water their portfolios to buy more stocks of companies with certain characteristics, such as the size of the smallest value or profitability. They do it because scientific research has proved that they are the only three proven factors factors to improve returns over the long term. They also believe that this approach can pick up even during difficult market environments.
When you invest in the fund, it is important to know and understand the investment methodology of the fund, has a track record of fund managers to run it. This methodology should resonate with. Otherwise you will be investing in something that has meaning to you, and when markets become volatile, you may struggle to stay invested
What this fund is investing in
There is a common misconception among new investors that invest in unit trust or ETF means you automatically build a large-scale to diversify your portfolio. This is not always true. You need to have an overview of what your fund is going to invest in. Usually this can be segmented into a few key areas:
Location: the area or region the fund invests in. For example, the fund can invest globally or in developed markets, or focus specifically on areas such as the United States or Asia or just one country such as China or India.
Sectors or themes:the industries the fund invests (i.e., technology or healthcare) or thematic funds (i.e. aging or automated).
Categories of assets: some funds invest strictly in stocks only. Some funds invest in bonds or commodities. Others take a balanced portfolio approach, with a combination of both stocks and bonds for example.
These are just a few of the broad areas that you should consider before investing in the fund. You should invest in unit trust funds and ETFs that hold assets that you are comfortable owning.
Choose the fund, but the fund manager chooses investments
This simple statement is one that knows what to invest in the fund.
When you invest in funds, what you are essentially doing is choosing fund managers instead of the actual individual investment. Fund managers then choose your investment (for all investors). Even the managers funds the management of passive index tracking funds will make effective decisions in the selection of the sample stock portfolio to better replicate the basic criterion, because it may be very costly to assess the core indicators altogether.
Ironically, many new investors don’t pay enough attention to money management. If people who invest directly do a lot of research on the asset that is put their money in, you don’t have to do a lot of research on the individuals who we entrust our money?
When you park your money with fund managers don’t take it for granted that all funds are equal. You should try to learn as much as you possibly can about the fund manager fund managers. Remember they are responsible for the investment of your money and make your return for you.
You invest because you want to generate a return and grow your wealth. However, if you invest through a unit trust or ETF, you will bear an annual management fee (also known as the fund’s total expense ratio). Of course, these fees eat into investment returns.
New investors sometimes ignore the small differences in administrative fees, thinking that a difference of 0.5% or 1.0% per annum does not really matter. This is the error.
Consider the example of an investor who invests $ 100,000 today and have a return of 7% per annum for 30 years. Here’s how returns will be affected by only a slight increase in the management fee of the fund:
Scenario 1: the fund charges no management fee of 1.0%. After 30 years, the portfolio value 574,349. He had paid a total fee of $84,801.
Scenario 2: the fund charges no management fee 1.5%. After 30 years, the portfolio value 498,395. He had paid a total fee of $116,129.
Scenario 3: Fund C charges no management fee of 2.0%. After 30 years, the portfolio value 432,194. He had paid a total fee of $141,521.
The management fee is only one type of fee that you pay. For unit trust other common fees include the initial sales charges payable when first investment wrap fees, as well as redemption charges that may apply when you replace the unit. For ETFs, you will be charged a brokerage fee when buying or selling. All these extra costs will eat into investment returns.
In the example above, you can see that a difference of 1.0% per annum in business management fees to be more than 142,000 difference in returns over a period of 30 years. This is based on an initial investment of $100,000 to 7.0% per annum. If the investment is greater for higher returns, the fees are higher as well.
In endowus, we believe that the long-term, buy-and-hold investors who do not need to intra-day trading, liquidity may be a more effective investment in unit trusts trade in the navigation, instead of trying to time the market when investing in ETFs and needs to push more of the underlying assets of the ETF are worth.
At the same time, we believe in keeping costs low, so our clients keep more of their returns. All entrance fees of 0.25% and 0.60%, depending on your assets under advice. All of this in the entry fee includes advice and investment resettlement and the transfer of mediation, in every part of the industry average. On top of that, the payment of fund level fees ranging from 0.50% to 0.56% which is charged by the fund manager out of the fund’s daily NAV.