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9 Highlights on Basics of Passive Investing At Seedly Year End Party

profileMing Feng

9 Key Takeaways From Seedly’s Year-End Party

To end the year 2017 on a high, Seedly Personal Finance Community had our year-end party over at SGX Academy. The topic of Passive Investing was picked by our community members through a Facebook poll.  Given that the Community’s wish is our command, we went on to get in touch with experienced speakers who are well-versed in the topic.

We managed to invite James Yeo from SmallCapAsia and Alvin Chow from DrWealth to share their knowledge with our community and below are the highlights of it.

1) Common misconceptions

  • Insurance = Financial Planning

    Insurance alone is not a full spectrum of financial planning. While insurance is actively being pushed out to consumers, personal finance goes way beyond just getting insurance alone.

  • Personal finance is not for me. It is only for the financially trained.

    Personal finance is for everyone, no matter your occupation. By failing to plan early, one is actually planning to fail.

  • Personal finance is a taboo subject and I have no one to ask

    Definitely not true. There are lots of financial bloggers providing really quality content online. On top of that, one can join either the Seedly Personal Finance Community or the BIGS World Community for their personal finance knowledge needs.

2) Personal finance as a game of soccer and you are the manager

  • Your income is represented by the 11 players in the field.
  • Investments are the attacking midfielders and strikers of your team.
  • Your formation depends on your risk preference

3) 5 Myths of investing

As shared by James Yeo, here are the 5 myths of investing.

  • Myth 1: High Risks = High Returns

    Investors ultimately want to be on an instrument that gives them high return and low risk.

    source: SmallCapAsia
    There are 4 ways people will try to do to lower their risk from high risk to low risk while attempting to maintain high returns:
    1) Investors may stop investing as a whole, which they will ultimately lose out to inflation.
    2) Reduce risk by value investing, where investors maintain a margin of safety while investing.
    3) Actively managed risk by having a hypothesis of the market and exit immediately once one realised his hypothesis is wrong.
    4) Manage risk actuarially through index investing.

  • Myth 2: What goes up must come down

    To emphasize this point, James brought up two case study.

    Case study 1: Stock price of Noble Group was at S$1.20 in the year 2014. Should investors rode on the trend and invested, they would have suffered a loss given that it is at about $0.15 today after a stock consolidation.
    Case study 2: Stock price of Walt Disney Co was at US$53 in the year 2012. Some investors would have waited, hoping to invest should it comes down to the range of US$40.

    These investors will end up regretting as the price of Walt Disney Co continued upwards to more than US$100 today. Hence, investors should look at stocks as businesses instead of purely looking at prices.

  • Myth 3 & 4: You can’t beat the market and that / Diversification is the way to go

    The average investor will underperform the Index fund.
    Whereas good investors who have a winning system and put in a good enough of time and effort will be able to do so.

    For working professionals like most of us,
    1) We have little time to actively manage our investments on top of work
    2) Looking at company report after a long day of work can be a chore.
    Hence, an easy way out will be to get an Index fund

  • Myth 5: Investing is too tough!

    Most people assume that investing is for those who are crazily versed in financial terms and knowledge. That may not be true.
    In the next part, James introduced 3 simple ways Singaporeans can get started.

Read also: A Singaporean’s Guide To Buying Stocks

4) Getting started with investing

James pointed out 3 simple points for Singaporeans who are new to investing.

  • Buying what you understand

    This can be through your job, a casual conversation with your friends or even reading the newspaper. One can kick off his first stock by finding out more about the company or industry that he is more familiar with.

    Note: A really good friend of mine saw that business for Sheng Siong is good when she went grocery shopping during the weekends. Sheng Siong ultimately became the first stock she invested in, and of course, she made a profit out of it.

  • Do your own homework

    Always follow up your ideas with smart research. 3 questions to ask as mentioned by James Yeo will be
    1) What is the competitive edge?
    2) Does the company have low debt or good cash position?
    3) What is the sales track record and profits?

  • Long-term investing

“Putting the odds in your favour” – James Yeo


5) The return Singaporeans should be aiming for when investing

Alvin started his session by reminding audience of a few important key points

  • The amount of returns is not the only important factor to consider when investing. The degree of loss is as important too.
    eg. Corporate bond at lower return, lower potential loss vs Commodity stocks fund at a higher return, but a higher potential loss
  • The risk-free rate of Singapore is at about 2.13%.
    This is the rate of return on a close to zero risk investment. Hence, Singaporeans should aim for returns higher than 2.13% should he be taking on more risk.

6) Unit Trusts

Typically, there are three types of Unit Trusts/ Robo-advisors package to cater to risk preference of investors.

source: DrWealth

  • Income/Conservative – Majority Bonds, and lesser percentage of Equities
    Typically: 4% return per year with 20% potential loss
    This is for investors with a low-risk appetite.
  • Balanced/ Moderate – 50% Equities and 50% Bonds
    Typically: 5% return per year with 30% potential loss
  • Growth/Aggressive – Majority Equities and lesser percentage of Bonds
    Typically: 6-7% return per year with 50% potential loss
    This is for investors with a high-risk appetite.

7) How to capture returns on your investments

Assuming a Balanced/ Moderate portfolio

source: DrWealth

  • For a Balanced/Moderate portfolio, one invests 50% of his investment into Equities and the other 50% into Bonds
  • Should the stock market do well, the portfolio of the investor ends up with an increased with 55% Equities and 45% Bonds
  • To capture this profit, investors will Rebalance his portfolio by selling a percentage of his Equities and investing a bit of which into Bonds to make his portfolio 50:50 again.

*Quick tip by Alvin: Most investors rebalance at the start or the end of the year. Hence, it is advised that investors like ourselves avoid those dates.

 8) Summary of Passive Investments

ProductPotential LossAverage Expected Returns
SGS 10-Years Bond0% (hold till maturity)2.14%
Unit Trusts (Income) or Bonds ETF or Conservative-20%4%
Unit Trusts (Balanced) or Moderate-30%5%
Unit Trusts (Growth) or Stocks ETF or Aggressive-50%6-7%

source: DrWealth

The above table acts as a “ruler” for investors to sieve out scams or risky investments.

Read also: Should I Invest A Small Sum Regularly Or A Big Sum At One Go

9) Take note of fees

  • Financial advisors: 1-5% of sales charge
  • Unit trusts usually have a 1.5% management fees
  • Robo-advisors: 0.5%-0.8%
  • Exchange-traded Funds (ETFs): lower than 1%

Hence, if an investor invests with a Robo-advisor that invest in ETF, he will be subjected to fees incurred by Robo-advisors and the Exchanged-traded funds they helped invest in.

For those interested in Robo-advisors, check out Seedly’s comparison of all the 3 Robo-advisors in Singapore here.

Conclusion: Good Food, Great Personal Finance Content, Awesome Community

What else does a man need to be happy?

We would like to Thank everyone who has joined us that special evening and we look forward to more exciting events next year!

About Ming Feng
A stint in Bloomberg gifted me with a beer belly, which only grew larger when I moved on to become a Professional Trader. Now I turn caffeine into digestible finance-related content.
You can contribute your thoughts like Ming Feng here.

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