Investing in STI ETF - Power of compounding

I wrote an article about power of compounding in May 2008, now i m revisiting this again. Why ?

Just a few weeks ago I came across one of Anthony robbin youtube video - 

Once again the AMAZING magic of compounding, here's the example mentioned in the video. Next time, a guy come up to you and offer to bet on the golf holes with $0.10 and double up , tell him, "I watch the same video too" =D

Initially it really really slow but once it reach the 15th hole, the money start to explode exponentially!
From a $0.10 cents bet it can snowball to $13,100

In order to achieve the above, we will need to leverage on instrument or vehicle that can give us an annualized rate of return of 100% , lets see what are the commons instrument that give us ROI:

1. Most basic, bank saving - (I wrote a few articles on this. One of it comparing interest rate offer by standard Chartered, fairprice plus and dbs - http://shulouto.blogspot.com/2008/05/highest-interest-rates-of-singapore.html) Just did a quite check, dbs saving account interest dip again to 0.125% pa; fairpriceplus dip to 0.200% pa; e$aver from standard chartered  dip to 0.15% pa (man i miss those days where they offer 1.88% pa, i got like free movie tickets every month just only interest rate =D)
2. Fixed deposit - posb offer 0.600% pa for 24 mth tenure and uob offer 0.700% pa for 24 mth tenure 
3. Investment link plan -5%  (not guarantee) 
4. Index ETF ie Dow Jones or STI ETF (7 % average rate of return without dividend - base on http://bullythebear.blogspot.com/2008/05/thoughts-about-sti.html)

From : http://www.your-roth-ira.com/roth-ira-index-funds.html

Scenario 1
An Exchange Traded Fund (ETF)

Expense Ratio: 0.09%
Initial Investment: $10,000
Annual Rate of Return: 10% (Before Expenses)
Annual Rate of Return: 9.01% (After Expenses)
Time Horizon: 30 Years
Future Value: $133,042.43

Scenario 2
Average Actively Managed Mutual Fund

Expense Ratio: 1.50%
Initial Investment: $10,000
Annual Rate of Return: 10% (Before Expenses)
Annual Rate of Return: 8.35% (After Expenses)
Time Horizon: 30 Years
Future Value: $110,883.63

That's a 19.9% difference in your retirement, or in this case, $22,158.80...!

STI ETF was offer in April 2002 

What's STI ETF - BACKGROUND

streetTRACKS STI, Singapore’s first locally created exchange traded fund, is designed to track the performance of the Straits Times Index (STI). Shares of streetTRACKS STI were listed and traded on SGX-ST since 17 April 2002.
The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of the Straits Times Index. There can be no assurance that the Fund will achieve its investment objective. The Fund will seek to achieve this objective by investing all, or substantially all, of its assets in Index Shares in substantially the same weightings as reflected in the Straits Times Index. Within the limits set out in the CPF Investment Guidelines, the Fund may invest in futures and derivatives instruments traded on Recognised Stock Exchanges and OTC Markets provided that such instruments are Authorised Investments.

The Manager employs an "indexing" approach intended to replicate as closely as possible the performance, before expenses, of the Straits Times Index. The Straits Times Index is a widely quoted indicator of the performance of the Singapore stock market. It currently comprises 50 common stocks which are selected by Singapore Press Holdings Ltd based upon certain market capitalisation and liquidity characteristics.

streetTRACKS Straits Times Index Fund has changed its name to SPDR Straits Times Index ETF with effect from 31 March 2011.

Here's the Strait Time Index (MAX chart) 

This a recent performance of STI ETF from Jun 2009 to current. 

Indices on a long run 10 - 20 years usually trend up, and for STI its a performance indicator of Singapore top 30 stocks ie, City Development, Capitaland, ComfortDelGro, SIA, DBS, starhub, NOL, Singtel, UOB, SPH, Semb Corp, OCBC, SMRT, ST Engineering - man for them to fail ? Definitely NO WAY! (This is strictly my personal opinion)

A level 1 person, either invest a lum sum or averaging the cost monthly into the STI ETF and pay the brokerage fee consistently and let it roll for many many years.

A level 2 person, sell when it's trending down and buy again when it's trending up - follow the wave

How to invest into STI ETF ? stay tune =D .......

Research :

http://www.your-roth-ira.com/roth-ira-index-funds.html

http://www.dbs.com/ratesonline/posb/Pages/fdsgd.aspx

http://www.standardchartered.com.sg/personal-banking/deposits/esaver-account/en/

http://www.plus.com.sg/savings_account.shtm

http://www.income.com.sg/insurance/VivoLink/index.asp

http://tankinlian.blogspot.com/2010/08/high-deduction-for-investment-linked.html

http://www.uob.com.sg/personal/deposits/fixed/singapore_fixed_deposit.html

http://www.sgx.com/wps/portal/marketplace/mp-en/listed_companies_info/company_all-in-one_info/!ut/p/c5/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gTn1DXUFNLYwMLtwA3AyMvZ3Mf09AAA_dAI6B8JE55g2BDSnS7mxHQ7aUflZ6TnwR0pZ9Hfm6qfkFuaESlo6IiANmLKQA!/dl3/d3/L0lDU0lKSkpDZ3BSQ1NBISEvb0VvZ0FFSVFoakZFSUFBak9NNFJrb0lBSVFBIS80QzFiOVdfTnIwUkprQWxJSWlSLS83X0NHQUg0N0wwMEdJTjcwMk5URzFVUEUxTzMwL2libS5pbnYvMTY3MzIwNDIwNjc5/

http://www.moneytalk.sg/2008/11/why-invest-in-sti-etf.html
http://sg.finance.yahoo.com/q/cp?s=^STI

Money Management - 6 Jars

Problem : When I get to expose to wealth book, remembered the first was rich dad poor dad, who moved my cheese, secret of self-made millionaire etc. Understand the importance of saving first then spend. If you don't control and track your spending, somehow it will consume all your earning or even exceed. Flash back 5 + years ago when I was an engineer and I came across adam khoo website and downloaded a couple of excel files which he used to track his finances. I start using it and diligently update the financial statement spreedsheet. When I start to track i became conscious on my spending, and somehow my bank account was growing by the months. After about a years plus i started to get lazy and stop it totally. Before i know it, i was badly in debt. Until 2010 i started to update it again but laziness kick in again after a few days. Apart from tracking the expenses and saving. I came across a book by T Harv Eker, Secrets of the millionaire mind. I learnt another money management skills which I like it alot, called 6 Jars (how to apply it ? will speak of it briefly under the how), Both techniques I learnt and applied before but I stop. 2011 is the time to apply and live these money management skills

Why : If I dont care about my own finance, track and accountable for it, who will. Thus I have put this into the 21 days habit program. It's like running my personal finance as a business. What are the cost/expenses (food, transport, entertainment, medical, gift, grocery etc) and what are the revenue (basic salary, dividend, royalities, business, investment etc) ? what are the opportunities to create new revenues ? At the end of the day, profitability.

How : 
1) Track personal expense daily(leave a comment here if you are interested on the spreadsheet), using the excel spreadsheet or if you have iphone, you can download expenses tracking app ie(ixpenseit) http://www.ixpenseit.com/or iBearMoney (http://ibearmoney.com/)
2) 6 Jar Management
Monthly when you salary is credited to your bank account.

10 % - Financial freedom Account (used only for investments and buying or creating passive income streams. Money is never spent, only invested. Also, have a Financial Freedom Jar where you deposit money each day ($1, $10, loose change)

10 % - Play account (Use this money to nurture yourself. Use it for extra-special things in your life. The only guideline is that you must spend the money every month. Use it each month in a way that makes you feel rich!)

10% - Long Term Saving (Put 10% into your LTSS whenever you receive money, such as your salary. The money inside LTSS can be used for major expenditure such as savings for your children’s education, buying a house for yourself, keeping aside contingency funds)

10% - Education account (Set aside money for your education (school, seminars,etc.) or your child's education.)

5% - Giving (Put 5% into your Give account whenever you receive money, such as your salary. You can use the money for donations to charities, use it to help someone in need. Giving is important. If you choose to give 10%, take the extra 5% from your NEC and change the % allocated for NEC from 55% to 50%)

55% - Necessities (Put 55% into your NEC whenever you receive money, such as your salary. You should use the funds inside your Necessities account to settle all your essential bills such as phone bills, electricity, clothings, eating, driving, travelling, hair etc. If you cannot survive on 55%, simplify your lifestyle. Instead of driving a car, perhaps you can take public transport, or drive a Honda instead of a BMW. Buy Converse jeans instead of Armani. There are people who cannot live on 55% NEC when they started the JARS system but over time, these same group of people are able to simplify their lives and live on 50% or lesser!)

Sam's Experience : 
Been consistent on the expenses tracking so far, updating it daily. Started applying the 6 Jars on Nov Salary but still confuse if i should transfer the money out from the main account to individual bank account for the different Jars. For the Dec 10 Salary, using the percentage allocation, i will transfer money allocated for play, education, and necessities to another bank account as these money will likely to be consume by month end. Whatever balance, will be offset in next month transfer.

ie Dec - left with $400 balance
Jan breakdown of play, edu and necessities ie calculated to be $1000, so the transfer amount will be $1000-$400= $600 (the $400 will be credited back to financial freedom account)

3 Jan 2011, I was researching which organisation to contribute the 5% giving, didnt know that there's so many helpful organisation around in Singapore (wonder where they get the funding) http://en.wikipedia.org/wiki/List_of_voluntary_welfare_organisations_in_Singapore

First, i thought of red cross(http://www.redcross.org.sg) and second I thought of MINDS(http://www.minds.org.sg) people who are intellectually disabled, I believe all who are able to think properly, have a choice but not these people. Third I thought of those old folks who are sick and nobody to take care of them (no idea which organisation support them).

Highest Interest Rates of Singapore Saving Account

I used to enjoy the 2% interest rate from E-saver but they kept revising it lately. Sadly it drop to 0.78% for below $20000. I get like $10-$12 per month, YEAH ! per month just on interest. Like having a free movie ticket monthly. And now it's like haiz.... Thus I went around scouting again. Check this out instead to get 1%, theFairprice plus saving

Some of you must be wondering why the hassle, I m fine with POSB account why change. Well here's a reason why if you want to make your money work harder.



You can still keep the POSB/DBS account as your primary expenses account. But make the main bulk of your saving work better for you.

2 Factor Authentication

I think most of us will have a bank account the only differences - bank, type of account and the amount inside =D.

Online shopping, fund transfer, bills payment, bank statement etc are services which combine the power of Internet and banking function.

Do you use Internet banking ? And what are the measures you took to ensure that personal information like Internet ID and pin are safe ? Some of the things I take note,
1)only use Internet banking on my personal PC/laptop.
2)Manually type in the Internet banking link on browser
3)clear history and cache of browser after usage.
4)ensure that your PC are spy ware and virus free
5)have a up-to-date antivirus program running

Here's another layer of security, ever hear of 2nd Factor Authentication ?
What's that ? and how it works ? Questions like these might pop and here's the answer.

Normally, you just need your ID and pin to access the Internet banking services from your bank's website. If anyone get to know about your personal information through some means, he would be able to gain access to your account.

With 2nd factor authentication, Internet banking user are require to provide a additional pin aka the OTP (one-time password, which is generate from a personal device you owned and it stays valid only for a few minutes after it has been generated, and it cannot be used more than once.)

Every One-Time Password (OTP) is unique and can only be used in conjunction with a user's Internet Banking Access Code and PIN. So even if a hacker gains access to your Access Code and PIN, the 2nd level of authentication prevents further entry because the OTP can only be obtained via a personal device (2FA Token) owned by you.

If someone manage to get your OTP device without the account information, he won't be able to do anything too.

With all the above, it bring me back to what I learnt during my Uni days, Security comes with complexity. But users does not want too complex stuff and want the maximum security.

As a DBS user, I m issued with a OTP device 1 month back. Not much hassle getting use to a additional device. But here's a problem for those who use Internet banking outside eg office. You will need to carry the OTP device around even though it about a USB thumb drive size.

As OCBC user, I m given an option to pick 3 method of 2nd factor authentication.



1) a hardware token
2) a token application which can be downloaded and install into your mobile phone.
3) SMS token - I think this will be the most convenient way.

Goods and Services Tax

Are you aware of the GST, "Goods and Services Tax" change in either next year or 2 years down the road?

Here's some interesting calculation from an email,

Example 1
In 2006, if after rebates etc and your net taxable income is $60,000, the income tax you need to pay is $2,700 (8.75%). If you spend $800 a month on needed goods and services, the GST paid for 5% will be $480

Total=$3,180 in Tax paid.

In 2007, if after rebates etc and your net taxable income is $60,000, the income tax you need to pay is $2,600 (8.50%). If you spend $800 a month on needed goods and services, the GST paid for 7% will be $672

Total=$3,272 in Tax paid.

From $3,180 to $3,272, the effective increase is 2.89%.


Example 2
In 2006, if after rebates etc and your net taxable income is $400,000, the income tax you need to pay is $61,650 (21%). If you spend $4,000 a month on needed goods and services, the GST paid for 5% will be $2,400

Total=$64,050 in Tax paid.

In 2007, if after rebates etc and your net taxable income is $400,000, the income tax you need to pay is $58,700 (20%). If you spend $4,000 a month on needed goods and services, the GST paid for 7% will be $3,360

Total=$62,060 in Tax paid.

From $64,050 to $62,060, the effective decrease is -3.11%.


Example 3
In 2006, if after rebates etc and your net taxable income is $25,000, the income tax you need to pay is $187.50 (3.75%). If you spend $800 a month on needed goods and services, the GST paid for 5% will be $480

Total=$667.50 in Tax paid.

In 2007, if after rebates etc and your net taxable income is $25,000, the income tax you need to pay is $175 (3.5%). If you spend $800 a month on needed goods and services, the GST paid for 7% will be $672

Total=$847 in Tax paid.

From $667.50 to $847, the effective increase is 26.89%.

The conclusion of the email : "The poorer you are the more the GST is going to make you
poorer "

Hmmm there's the blink spot I discovered. If you take use the same avg spent per month for all the 3 examples, the example two will have a 4.7% increase. BUT I wonder if that someone would just spend $800 per month when he/she like earning $400,000 per annual which break down to about $33k per month.

CPF

Are you aware of the CPF contribution percentage ? Thought it was 20% from both employee and employer until like 15 minutes ago. Here's the chart


Making it a habit to check the monthly CPF contribution, though you can't gain access to them for the time being, they are still your asset. Need monitoring and maximize their ROI.
Ordinary account - 2.5% P.A
Medisave, Special & Retirement accounts - 4% P.A

A whole lots of information man, life events which give you an overview of the important life stages.

• starting work
• getting married
• having children
• buying a house
• providing for your healthcare needs
• living overseas
• starting a business
• hiring employees
• reaching 55
• managing your retirement
• losing a loved one
  

For those who wish to check their CPF contribution/investment, you need to use Singpass (Request for Singpass delivery) to login at Central Provident Fund

Standard Charted Bank

Made a quick trip to Standard Charted Bank to open up a eSaver account during lunch hours. Pretty fast serving rates by tellers. Thought the teller should be able to fulfil my request of opening an account but somehow I got referred to another person. Not sure what's his title, maybe personal banker ?

This guy was telling me about mobile/non mobile saving, how much saving I m looking at per month and displaying comparison chart on ROI of different products. I m not looking to long term saving at that point of time as I got a few saving policies on hand + no intention of reducing my current cash flow.

After I make it clear to him that I m there for only the esaver account, things became much quicker. He proceed with the registration and paper documents after getting my clear signal. Somehow I sensed sarcasm when he asked me for the amount to deposit, "How much do you intend to deposit with us today?" Follow by almost immediate, "A dollar?" I had been asked the same question before but it just feel different today.

Here's the story how I landed up in Standard Charted today.
Got this eSaver information from a friend, she showed me this $e-Saver brochure last year end and recommended me to open an account with them. Why ? She's not working for the bank. It's the attractive interest rate, 1.88% PA.

Well it didn't catch my eyes initially. But 1 years later, I started research on interest rates of saving account offered by common brand of namely, HSBC, OCBC, DBS, UOB, MayBank, interest rates varies from 0.25 to 1.25 % depending on the amount.

Well if you think there isn't much different on where you put your cash, take out a calculator and complete the problem sum.

Jaslyn has a active saving account of $5000 with Xyz bank. Xyz bank offer a interest rate of 0.25% PA. Joyce has a active saving account of $5000 with Abc bank. Abc bank offer a interest rate of 1.88% PA. If both of them did not make and withdrawal/deposit for the next 12mths,
1) What is the payout interest for each of them ?
2) What the difference in amount between their accounts?

Selling points,
* High Interest Rates, 1.88% for amount less than 50k
* NO lock-in period.
* NO monthly fees.
* NO minimum deposit.
* NO minimum balance.
* NO fixed term.
* NO statements to file.
* NO ATM cards, passbooks or cheque books to lose.

Now the crons,
1)e$aver is a Savings Account that can only be operated via Phone Banking or Internet Banking. 2)Withdrawals at branch counters will incur a $5 service fee.

More info of eSaver

lesson learnt

CHeers!!! great job for completing the last day of the week man. Weekends!!! But it's kinda of sad to look at my wallet right now, TOTALLY empty and i withdraw 50 bucks like 2 days ago. Food and transport expenses getting higher man. Or its the effect of the rising transport cost ? Just learn the the 4 level of wealth from Adam khoo book, "Secrets of self-made millionaires". The first level, Finanical Stability, was kinda of puzzle initially - what he meant by that?

Definition by him, Finanical Stability
1) Your current cash/cash equivalent items can sustain your current monthly expense for a minimum of 6 months
2) Possess hospitalisation and life protection for your family should anything happen.

Actually sometime someone told me about the cashflow to cover expenses for 6mths but i didnt really bother about. And guess did I manage to accumulate the required amount in my bank account after working for nearly year? NOPE =\. There's a simple strategy for it, actually a formula. stay tune.....yawnz....晚安

Banks

What's the first thing that come across your mind when you see that word?

$$$$ Yeah you are right, i m one of them.

Its a place where most people put their earnings in safe keeping, transaction, loans, e-commences, cards, finanical accessibility and many others which i have yet to find out. So what's the service(s) you would use provided by your bank? Even before that which bank did you choose ?

What are your consideration points for selecting the bank to open an account ?
1)Interest rate ? depends on what kind of account you have. I did some research sometime back, for the basic bank account, comparing banks : HSBC,DBS,OCBC,UOB,Standard Charted. Out of the above stated, Standard Charted 'e saver' offer the highest 1.88% => http://www.standardchartered.com.sg/cb/deposit/dep_esaver_ac.html

You may think, "why bother, its just 0.XXX different", i will leave that answer for you to find out.

PS : Just found out that citibank, you need at least $5k to open a citibank saving account.

2)Accessibility ? Can you find ATM or the bank center when you need them ? And the queuing rate.
3)Offer/privileges ?
4)Online services and their security ? Have been using DBS and OCBC online banking services, quite pleasant so far. But would like to try Citibank, got a good feedback from a friend.
5)Attractive bank tellers ? haha better not the queue will be so long!!!

OMG, i justed recalled i havent update my bank books for like 3 years since i started to use internet banking frequently.

Just imagine a world without banks............what will you see, hear, feel ? You might want to voice your imagination over at my tag board. Its kinda of empty for weeks that i thought that the codes are buggy thus nobody can post.

Think Abt 'R'

I was reading a book on MRT, its was written in chinese, i only manage to complete 3 pages from Harbour Front MRT to Hougang MRT. Not because my chinese is really that poor, didnt fall asleep neither its beautiful babes around. Its the contents that make me took up my 'heavy duty nokia 7250' haha those who saw it should know why i quote it.

Inside is talking about some survey done in US on the retirement funds of 100 Americans. If you want to know the ratio just do a search on the web, i think you should be able to find those info easily.

The main dish is : retirement

With reference from - http://www.singapore-window.org/sw05/050225to.htm

Average retired Singaporean has among the lowest average monthly retirement income among the 15 countries, at $1692. Canada ranked first with $4216, with Hong Kong last at $1177.

This average monthly income is marginally above the average household expenditure of $1592.

The study, however, did not take into account factors such as different costs of living in these 15 countries.

1) When you plan to retire ? Let this age be 'A'
2) How much you want to have each month after the retirement ?Let this amount be 'B'
3) What's your current age ? Let this age be 'X'
4) Have you start saving for retirement ? How much you save for retirement annually ? Let this amount be 'Y'
5)If you want to relies on your children support and giving you an amount monthly. Let this amount be 'Z'

Eg A average guy whose age 24 now and wish to retire at a age of 50 with monthly retirement fund of 1692 ( varies if loans not yet complete, children eduation or debts). Lifespan to age 80

Working life = A - X = 50 - 24 = 26 years
Retirement period = Lifespan - A = 80 - 50 = 30 years
Total retirement fund needed to last 30 years = 30 years * B = (30 * 12 )1692 = 609,120
Total retirement fund needed to last 30 years ( if your children are supporting you) = 30 years * B = (30 * 12 )(1692 - Z) = G
Saving needed monthly during working life = 609120 / (26 * 12) = 1952.30/mth

Thus this guy need to save 1952.30 monthly to have that amount of retirement income.

So how much do you have for your retirement ?

Facts :
http://www.singapore-window.org/sw00/000525fe.htm

Even government leaders warn that Singaporeans will need to look beyond the fund to finance their retirement. "The CPF is not sufficient," National Development Minister Mah Bow Tan said in November.

The trade-off for Singaporeans is that they can use their CPF accounts for major expenses such as housing and medical treatment

A government-led committee on ageing noted last year that 24 percent of the CPF members who reached age 55 in 1998 had less than S$16,000 (US$9,250) in their CPF accounts--an amount that will run out quickly if the retirees lack family support.

http://www.ssa.gov/policy/docs/progdesc/intl_update/2005-05/2005-05.html

"Despite having one of the world's highest saving rates, many Singaporeans are expected to have insufficient savings in old age because of preretirement withdrawals for housing purchases, low returns on CPF account balances, and the tendency for many to stop working at relatively early ages.

For example, the 3 million members of the CPF have placed S$110 billion (US$67.2 billion) of their savings into property but only S$29 billion (US$17.7 billion) into investments and insurance. Worsening demographics are compounding the problem. It is estimated that by 2030 the number of persons aged 65 and older will increase fourfold, with no corresponding growth in the working-age population to support them."

You're Blessed

Do you complain ? Maybe about your workload, working relationship with colleague, your friend's action, your family, personal stuffs etc ?

"Indonesia races to cope with quake survivors as death toll passes 5,400 with roughly 200,000 homeless."

Some of the people in our neighbouring country are struggling with basic surival and we are complaining about minor things in life. So telling yourself that you are fortunate, will make ya feel blessed.

But some may say, hey look its a different environment we are in. Here we are struggling for 'basic surival' too, we need to constantly work hard to buy a proper shelter(for most people will be tie to a loan which last for 20-30 years) and bread for our family. As we all know the 5 子 - 老子(parents)，妻子(spouse)， 屋子(house)， 孩子(children)， 车子(car)。 Have you ever sit down and think about the 5 items mentioned?

1) How old are your parents now ? How many years they can still work ? Are you going to take care of them?

2) Are you going to marry ? Are you guys going to have a memorable ROM & wedding celebration ? Plan to stay with family ? Both party working ? What are the family commitments for both parties ?

3) Getting a house ? What type you actually wanted or what can you afford after weighting all the factors? Loans and interest involve ? Have you find out how much you need per month just for house loan? Info : CPF could help

4) Plan to have kids ? Have you calculated the medical/education cost ? How many you plan to have? Whose going to take care and nurture them ?

5) Reason for getting a mode of transport ? Its a 10-15 years loan again for most people. Have you weight the pros and cons ? Down-payment, monthly payment, tax, petrol, insurance, parking, do work out your monthly finanical statment(highly recommend for everyone to have one, have you say something like that lifestyle or object only for the rich, where all my money gone?)

So find yourself maybe an hour to think about the above. If it helps you in anyway, do drop me a note =D

Cheers!!