First Step to Investing- ETFs

Hi readers,
This post is 1 week late from when I promised. Let's move on...

Most student does not have much savings in cash. It is perfectly fine, investment can start from $100! Today, I will be introducing the Exchange Traded Funds. This will not be a technical lecture on each ETF but it is sort of a walk-through for you guys to follow and get started. I am proud of myself because I self-learnt all these and more in 3 months summer vacation.

Intro to ETFs
Exchange traded funds aimed to mimic the performance of indices, for example the Straits Times Index. It resembles unit trusts but could be traded on SGX, unlike unit trusts. ETFs hold assets. Let's take G3B (Nikko AM STI ETF) for example. G3B holds shares belonging to several blue chips listed on SGX. These counters are also major components in computation of the STI. By buying units of G3B, you are indirectly investing in those blue chips. Like any other counters, G3B pays dividends as well.

How to buy ETFs?
I strongly recommend you to start with an ETF, preferably Singapore market. I believe there are only 2 ETFs that tracks STI, G3B and ES3. Both should be equally safe and yields almost the same profits but I choose G3B because it is offered under Regular Savings Plan of POSB/DBS.

This RSP is currently charging 1% sales fee on each purchase of G3B. You decide the monthly investment amount, starting from SGD100. There are no management fees and when you want to liquidate your holdings, the 1% fee does not apply. You may enrol/terminate/adjust the RSP anytime through ibanking. This method employs dollar-cost-averaging strategy, which eliminates the requirement to "spot" the correct entry price. Having such an arrangement is very convenient, no need to think much, just keep track and review annually.

I recently convinced myself of a better method to get invested in G3B. Using the SCB (Standard Charted Bank) trading account. Just bring your IC and head down to any branch to open accounts. Just tell them you want to open a trading account. Please note that a compulsory opening of esavers account is required if you are not a current SCB customer. New T&Cs, from 28 August 2015, we have to maintain average daily account balance of minimum $1000 in esaver account to avoid $2 fall-below fee. Literally just park $1000 in it and don't touch will do. If you have problem coming up with this extra $1000 to park, stick with DBS RSP first. The catch of SCB trading account is that it does not charge minimum commission on all trades! Other brokers are charging $18 to $25 per trade. SCB charges 0.20% per trade, which allow us to do DCA with even lower cost than the RSP. We can also have some control over the time of entry while RSP die die have to purchase every 13th of the month. However, min trade lot size is 100units. Taking current price of G3B at $3.26, that would be $326 per trade instead of a lower $100 using RSP. I will reduce my trading frequency to accommodate my limited cash balances...

Of course, there is another hardcore method to buy ETF. This one will suit the rich kids. Do your own maths, min broker's commission is $25. The good part is, you get to keep the units in your CDP account. Not like it can yield higher profits but you will not be exposed to the bankruptcy of SCB. The probability is very low, so I took the 'risk'. By the way, SCB does not offer CDP linkage. All shares are under the bank's custodian account. This means you will be unable to get invitation for AGMs and hard-copy statements. All statement are published online, so fear not.

My next post should be covering either REITs, Dividends or Blue Chips.

Thanks for visiting my blog. Feel free to ask any related questions in comments.

Signing off.