Salary.sg – Your Salary in Singapore

While we’re still talking about investing in funds, the Business Times published a very interesting article by Larry Haverkamp, who is perhaps better known as Dr Money of the New Paper.

Larry did a study on some 325 funds in the CPF Investment Scheme (CPFIS).

He found that, not surprisingly, fund returns are random from year to year. And regardless of how “smart” fund managers are, they can’t even generate above-average returns consistently.

Er, you ask, so why are fund managers still doing well? Simple. It’s all thanks to slick marketing.

Funds distributors will always advertise only their top performing funds with lots of publicity. They don’t tell you about the underperforming ones, which unfortunately form the majority in their basket of funds. Come next year, when the previously hot-selling funds become losers, the distributors will pick other winners to market and sell.

Larry’s conclusion is that past performance doesn’t matter. It’s costs that matters, which is why he also recommends buying index funds and exchange traded funds (EFTs).

Here’s perhaps the most important extract from the BT article:

“… it helps to diversify. Then, hold for the long run. What about stock picking and market timing? Forget it. They contribute practically nothing to returns. Why? Because studies show that it can’t be done. Not even by super-smart fund managers.”

Tan Kin Lian has this advice for us in his weekly column in My Paper: buy low-cost index funds. He cited an analysis done by John Bogle of the Vanguard Group.

According to Bogle’s analysis of 355 funds, which work in the same way as our unit trusts and more recently “structured products”, only a miserable 24 performed better than the market benchmark.

In other words, why should investors pay the professional fund managers who charge an arm and a leg in management fees when they could have easily parked their hard-earned money in index funds?

Index funds typically incur much lower costs than other types of funds.

Tan Kin Lian then went on to give a local example of a poor performing fund. It’s a structured product that generated a miserly 0.4% per annum return.

Now back to his advice on buying low-cost indexed funds. Do we have such products in Singapore? There are more than a handful.

According to Monetary Authority of Singapore list of authorised Collective Investment Schemes, these are some index funds that you can consider:

• ABF Singapore Bond Index Fund from DBS Asset Management
• US Dollar Nasdaq 100 Index Capital Protected Fund from HSBC Investments
• Infinity European Stock Index Fund from Lion Capital Management
• Infinity Global Stock Index Fund from Lion Capital Management
• Infinity U.S. 500 Stock Index Fund from Lion Capital Management
• Singapore Index Fund from Singapore Consortium Investment Management Ltd
• ABF Pan Asia Bond Index Fund from State Street Global Advisors
• StreetTRACKS Straits Times Index Fund from State Street Global Advisors

The Straits Times reported that Singaporeans are more keen to keep working, with about 60% of those surveyed saying they intend to work as long as possible. The global average is 40%.

The survey report is called “The Future of Retirement” and is compiled by HSBC and the Oxford Institute of Ageing.

I took a look at the media factsheet for Singapore, and also the 51-page general report. I summarize the interesting points here (with one or two comments of my own):

1. 20% of the 60-79 age group and 51% of the 40-49 age group have given support to others (e.g. financial support), but as for receiving support, the proportion is about 20% to 25% for all age groups (aged 40 to 79). Why are people as old as 79 still giving support to others?
2. About 63% said they will continue to work for as long as possible.
3. 65% of the younger 40-49 age group feel that “life is full of opportunities”.
4. “Old people in Singapore miss money more than expected after retirement, bucking the global trend,” says the report. 42% of retired Singaporeans said they worried about not being able to cope financially. In fact, we are 3rd out of 21 countries in terms of “missing money more than expected”. Maybe we’re just a money-minded society.
5. Fortunately, Singapore ranks quite high with regards to feeling responsible towards their families. We are 8th out of 21 countries, behind countries like India, Malaysia and Hong Kong.
6. We came in 4th (out of 21 countries) in terms of not missing work as much as expected.

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