29 Jan Is this a Good Deal? – A review of Sunday Times Invest Section
A handful of investment products was mentioned in the 27 Jan 13 Sunday Times. I am referring to the article, “Grow your wealth wisely”, in the Invest Section which the reporter, Magdalen, had solicited comments from industry experts. She tried to help retail investors understand the products better, without the sugar coated sales pitch. I will go one step further to make quantitative comparisons for some of the products.
This is a regular investment program, or better known as dollar cost averaging technique, whereby investors commit at least $2,000 a month to buy funds they chose. Mr Mudit Goenka said,
“most unit trusts also allow investors to vary investments over time so he is not sure how this product is any different.”
OCBC Momentum is nothing new. It is still old wine in new bottle. Majority of the unit trusts are not able to beat the index. It is difficult to compare the performance for this product as it depends on the unit trusts the investor picked. Nonetheless, we can always benchmark against the Share Builder Plan (SBP) from Phillip where we can buy STI ETF on a monthly basis. For the past 10 years, STI ETF has returned an average of 8.95% per year. However, we can assume 8% per year for our calculation.
This means that if we invest S$2,000 on a monthly basis for 10 years, we will have S$347,677.50 at the end of 10 years or a profit of S$107,677.50 (excluding brokerage costs). Remember to benchmark any Singapore equity investment with STI ETF returns.
This is an endowment plan underwritten by Aviva. It has a cashback from 6th policy year onwards, but investors have an option to reinvest the cash back for greater returns. We will assume all of the best case scenario which is to reinvest every single cent and allow the money to compound. I will then make a comparison with STI ETF SBP and a term insurance. I assumed $10 premium per month for a term insurance of $20k plan (I think $10 is more than the normal rate). The table below shows the returns from STI SBP plan + term insurance beat POSB MyFlexiSaver’ returns by almost 3 times.
You may say it is unfair to compare an endowment plan which are mainly invested in bonds, against equities like STI ETF. I do not think this is a concern because if I am an investor, I will want to put my money where I can get the best returns based on my risk tolerance. If I can take equity drawdowns, I will want equity returns. Why would I want to shortchange my returns with an endowment plan? But of course, someone who cannot tolerate stock market crashes would be better off with an endowment plan. He or she is less likely to commit the common mistake of selling stocks after stock prices dive.
HSBC Managed Solutions – Asia Focused Income Fund
This unit trust invests in mid- to long-term bonds in Asia excluding Japan. The management fee is 1.25% per annum and a sales charge as high as 5.25%. The performance of this bond fund is dismal if denominated in SGD and after considering sales charge (the return is negative if the sales charge is accounted). To be fair, this fund is relatively new as it was incepted in 25 May 12 and the results above is based on 30 Nov 12.
Assume I choose a comparable long term Singapore Government bond (NA12100N 420401) through SGX on 25 May 12 (yes, you can buy and sell bonds like stocks over SGX now), I would have paid S$102.15 for each bond or I can buy 90 bonds for a total price of S$9,223.50. Compared to the fund, the Singapore Government bond would have made a positive gain on 30 Nov 12. See the comparison below.
As Magdalen described the product,
This complex product is a dual currency-linked investment product. MaxiYield usually lasts two to four weeks.”
And Mr Ong Lean Wan cautioned,
It’s better to leave it to the experts. The returns that are advertised are usually annualised, so if you work it out, for a two-week investment, the returns are very low, and the downside potential is not limited.
If you do not understand the product, do not invest. If you want to sell options, you can do so via an options broker. If you want to trade forex, you can trade through a forex broker. In both cases, things are more transparent and simpler.
UOB 13-month fixed deposit
UOB 13-month fixed deposit is offering 1% interest rate on a minimum amount of S$20,000. The 1% return for 13-month is hard to beat even when investors consider 1-year Singapore Government bonds.
The problem is not the number of products, but investors have to understand what are the benchmarks investment products need to match up against. Be forewarned, anything that is aggressively advertised and marketed are usually not worthwhile to pursue.