Sunday, December 19, 2010

Investing in Singapore, Part 2: The Devil is in the Details


Just to recap, in Part 1 we pretty much established the following things:

1. 50,000 pesos should be enough to start investing.
2. Invest in the long term.
3. Investing in a business in the Philippines is not advisable if you're working/living abroad.
4. If you're working/living abroad, better just invest where you are (in Jay's case, Singapore) so you can be more hands on.

Now we're ready to go into the nitty-gritty of investing in a more developed Asian market like Singapore.

5. Next step? Open an Internet banking account with your bank, in your case Jay, DBS. One important advantage of investing in countries like Singapore is convenience; Singaporean banks allow depositors to invest using a single bank account with an Internet banking service, unlike banks in the Philippines where investments can only be done over-the-counter, or with a separate trading account like in the case of BPI Trade.

6. Check out the the available investments. Looking at the investments page of the DBS website, we see that the bank offers three product types to individual investors: unit trusts, structured deposits, and treasury products.

Unit trusts are the same as the UITFs we have in the Philippines, and you'll find a more informative and user-friendly list from DBS's Asset Management website.

Structured deposits are derivative investments whose value depend on underlying assets, like bonds or stocks. Basically, it's a bet that the price of some asset, or anything that fluctuates like foreign exchange rates or interest rates, will move a certain way.

What DBS refers to as "treasury products" actually covers a diverse group of securities like currencies (the real thing), currency-linked investments (derivative investments, just like structured deposits), and government and corporate bonds.

7. So many, so complicated. What to choose? Since you're just starting out, I suggest that you stick with the more traditional investment funds offered by DBS, those that are invested in stocks, bonds, or a combination of both. Derivatives like structured deposits and currency-linked investments are too risky and complicated, in my opinion, for ordinary folk like you and I. And one important investment advice we can get from Warren Buffet is to never invest in something you don't understand.

In choosing the best fund for you, you can start by looking at the fact sheets from the DBS Asset Management website, like this one for the MyHome Fund - HomeSteady fund (sounds tailor-made for you, ain't it, Jay?). It turns out that there's nothing special about the fund, except the name: it's just an 80/20 combination of a Singapore stock index ETF and bond index ETF (in case you missed the article about ETFs, click here). This means, instead of paying 3% up front and 0.5% every year for a fancy-sounding investment fund, you can actually brew your own combo by investing in the ABF Singapore Bond Index Fund and DBS Singapore STI ETF on your own, at whatever proportion that suits your fancy (just remember the rule of thumb: higher risk, higher return if you invest all in stocks) with significantly lower fees.

These two index ETFs are cheap, good-enough funds to start with; all the others are too expensive, in my opinion. When you do get the hang of investing and are willing to take on more risk, then you can start investing in individual stocks by opening a DBS Vickers Online account, which will also give you access to investments in other markets like Hong Kong, Canada, and the US. Then, as they say, the world will have become your oyster. :)

One last thing. Since you're an account holder, you can always ask the DBS customer service reps questions about the specifics of opening accounts and investing in funds. Don't hesitate to take advantage of what you're entitled to.

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