Monday, May 01, 2006

Tip for the Young: You can get $48,000 more

You can get $48,000 more by investing in a fund with low charges. So pay attention.

You should invest in a large, well diversified fund, and for the long term. This allows you get an attractive rate of return.

You should choose a fund fund that charges you 1% per annum or less. Most funds have charges that amount to 1.5% or 2% per annum. Some funds have double layer of charges that can take away 2% or more.

If your fund earns an average of 7% per annum (before charges), and the fund charge is 1%, you will get a net return of 6%. If the fund charge is 2%, you get a net return of 5%.

What is the difference?

Assume that you save $300 per month over 30 years. The total saving is $108,000.

If the net return of 6% (ie 1% charge), your total amount will be $294,000. If the net return of 5% (ie 2% charge), your total amount will be $246,000. The difference is $48,000.

You can get $48,000 more, just by choosing a low charge fund. The gross earnings in both fund should be the same, as they are large, well diversified and managed by good fund managers.

Why do some funds charge 2%? They want to make more profit for their shareholders. So they pay less to the investors.

Look at the comparison in this website:
http://www.askdrmoney.com/Ins_ILP_SP.htm

Who provies a low cost fund of 1%? NTUC Income!

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