In the past month, I had a couple of conversations with some of my friends who wanted to start investing.
Many of them know that I have been buying shares for 4-5 years but I rarely speak of it when we meet up, reason being that I don’t see the point to do so. It is only when they are interested in investing and seek to find answers on what they should do, and that is when I will try to advice them on what I think is the best based on the options available to their situation. Unfortunately, my advice usually falls to deaf ears or rather, I get responses from them that I find rather amusing. I thought I would share with you the typical questions that they will ask and how I will try and answer them with some amusement as well to get my point across.
Hopefully, you may also find my experiences entertaining as well, or could help you if you have similar questions.
Should I buy an ILP?
Earlier this week, one of them was interested in buying an ILP which was very similar to what I bought before. I have requested for the policy details and surrender values for each year based on projected returns of 4% and 8% in the brochure. Premiums were quoted to be $750/month and all returns are non-guaranteed. Expected break even to be at 13th year based on the the 4% projected annual return. Any withdrawal before the 13th year would be subjected to penalty.
This was a rather straight forward analysis, as with many other ILPs that I have analyzed before. After sending over my calculations to him, he asked me this.
Question : The surrender value indicated is not guaranteed. It is a projected value but high possibility to attain in Singapore. Money will be invested and allocated into different types of funds. High risk high returns. What is your opinion?
Miss Niao : The funds that they invest in are their company’s own mutual funds. Typically, mutual fund annual fees are 1-2% of your original capital. Whether the fund outperforms or underperforms the market, the company will still deduct fees from you. 1-2% may not seem like much but a projected 4% annualized return will become 2-3%. Compounded over a long investment period will significantly eat into your overall returns. Due to this reason alone, the net returns from mutual funds will rarely beat the stock market index. Past annualized returns of S&P500 are about 7-10% over similar holding periods including dividends. Opt for a much lower cost option like an index fund/ETF with expense ratios as low as 0.03% per year.
If you would like a more disciplined approach, there are many DCA options like POSB Invest Saver plans that will make automatic deductions for you monthly. At the same time, it offers much more liquidity since you can sell your holdings more easily than if the money were stuck in the ILP.
Should I buy Tesla stock?
Miss Niao : It is ultimately your choice, but I did not. Because as of writing, at $600/share and PE of 900, I did not bother to even go to Tesla’s website and open its annual report. >.<
Friend : Ok, but just to let you know I buy already. Lol.
Should I use robo-advisor?
Question : I saw on Youtube ad that now robo-advisor can track other investors buy and sell trades automatically! That means that someone do the job for me sia, I just follow!
Miss Niao : Ya lor, then if he go to Holland, you also follow lor.
In my opinion, I think robo-advisors are a really good tool in helping to automatically allocate your funds into your “risk profile” while offering low trading fees. I found out from my friend that they will even do portfolio rebalancing, meaning you can choose how much of your portfolio you wish to be placed into stocks or bonds (e.g. 70%/30% ratio) so that you can get a little bit of both worlds – something that might not be easy to do on your own due to limited time and capital.
Personally, I do not use it because I don’t really diversify my portfolio that much and I have a relatively different investing approach as to what it can offer. I guess I find having to analyze a stock fundamentals quite fun to me. I like reading annual reports and earning release every quarter/half yearly. Every stock I hold have its own story and journey to growth behind it. Being able to be a shareholder and follow the company’s journey is a privilege.
At least if I reach Holland as my final destination, I would know that I took the MRT there instead of GrabCar.
Do you buy bitcoin?
Miss Niao : No.
Friend : *Continues with all the Lite, Eth, etc jargon and I just stare at him with a confused face*
What did you buy during market crash?
Miss Niao : CCL, FIZZ, T12, etc. *whips out phone with StockCafe profile*
Friend : *looks through list with frowning eyebrows* Why you never buy Singtel or FB or Amazon!!! What a waste sia.
Miss Niao : Beats me! 😦