It is important to choose a low cost fund for your investment. If you invest in equities for the long term, you should be able to get an average yield of 3% to 4% above Government bonds. This should give a gross yield of about 6% to 7%.
If the expense ratio of the fund is 2.5% (which is quite typical), you will get a net yield of only 4% (after charges). If the expense ratio is 1%, you get a net yield of 5.5%.
The difference of 1.5% in the yield can amount to more than 15% over 10 years. It is important to invest in a low cost fund, so that you can keep most of the yield.
The experience of most investors is that the speculative funds incur high charges and do not produce a better yield over the long term. In fact, many speculative funds lost money for the investors.
Dear Mr. Tan,
ReplyDeletedo we (retail investors) really have access to truly 'low-cost' funds in Singapore?
Index funds are extremely popular and low-cost investment funds in the west, but we have only 3 such funds here (i think you should know these). Even in this case, these "low-cost" funds charge have annual expense ratios of >1.2%, whereas the US mother funds they feed into have expense ratios <0.2%. Of course, these funds in the US are no-load as well.
ETFs could be an alternative, but the cross-listed ETFs on the SGX have very low liquidity, and again, their expense ratios are several times higher than their US counterparts.
Would appreciate your thoughts on this matter.
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ReplyDeleteLooking forward to the day VANGUARD FUND can come to S'pore. The demand is definitely there, just no bank willing to take it in, guess they also worried that cannot sell out those high ER fund once index fund really penetrate into S'pore
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