No more trust in Unit Trusts...
Many many years ago while I was still schooling, I recalled my parents investing in something called unit trusts (called mutual funds in the US) at the advice of a relative. Being naive and foolish, I asked to invest some money too (who don't wanna make more money!) Because "they" said there was a "professional" fund manager who was going to manage my money and there wasn't any apparent fees involved! Because Professional = Good = Sure Win right!??
It was only after a few years when I asked to check on its performance, i realised it was actually worth much lesser than its initial value. 😖 Besides the investment being underwater, I was still being charged management fees and some other front load fees and other what not (this is regardless if my investment made / lost money!). That was my first painful lesson when it comes to investment. Lesson learnt then: There is no sure win investment. Not even with the so-called Professionals. (that was before i learnt about CPF.)
Pay peanuts, get monkey (largely speaking)
There were many more painful lessons to come through my investment in China penny companies in the SGX.
The temptation of buying a 1 cent China company stock on SGX (it could be other country company as well, just that there were many Sino-type companies on SGX, even till today) and potentially doubling my money when it rose to 2 cent was simply too great and yes, I eventually got burnt when the stock tanked (that's a relatively positive thing actually) or company got de-listed (lost all money) due to some governance issues crap. When investing, one tend to always look the potential upside and fantasise how much we can profit. While I was aware I would lose 50% of my capital if the 1 cent stock dropped to half a cent! (how is there even HALF a cent!?), that thought wasn't quite strong enough to prevent me from buying the penny stocks (greed was stronger). Being aware of the risks sometimes do not mean much IF you keep thinking to yourself, nah, wont be so sway one la, my penny stock will not be the one to tank. 😛
Those losses are what I call tuition fees... and also learning that prices do usually indicate quality. These companies are cheap, for a (or many many) reason(s). Notwithstanding, there could be some great value penny stocks out there which may eventually outgrown its "penny" status over time, but of those that do, many many many more do not and eventually fail, so the odds are not really in our favor.
So lesson learnt: Do not be greedy and avoid the temptation of penny stocks (or invest a tiny bit of money you are prepared to not see them again).
The above happened during the days where minimum purchase "lot" of SGX-listed securities was 1,000 shares, which was partly why one would look more to cheaper penny stocks, simply because buying 1 lot of DBS at $17 would require $17,000! A positive change SGX made in 2014 made buying blue chips stocks more accessible when one could now buy 100 shares instead of 1000 shares. e.g. you could now buy 100 shares of DBS at $1700. Too little too late for me at least...
Still learning, after all these years...
Fast forward to this year.
Together with my wife, we recently took another loss of a couple of thousands when we used our CPFIS-OA to invest. At the advice of an independent financial adviser (FA), we parked about 100k CPF funds for him to invest. I was initially uncertain if we should be investing our CPF OA but the adviser shared that he would be able to make >2.5% in the long run. Granted, I believed that it was possible, but I always had that nagging feeling in me that the fees were going to eat into the returns.
In addition, I had only recently learnt about CPF tips and hacks. Took the effort to sit down and read up on CPF tips from blogs and books and came to realise that CPF was actually quite a good investment vehicle with 5% for first 40k in SA and 4% thereafter. The FA did not touch our funds in our CPF SA because he said that 4 - 5% were decent returns. But it did not dawn upon me (yes, late to realise 😞) that i could transfer my OA to SA to get those amount instead of investing them in unit trusts. Yes, i understand there are implications in transferring OA to SA and will share more in another post.
My wife and I gave it serious thought and decided to bite the bullet and divest our CPFIS-OA investments after only about half a year and stopped our regular investment via CPFIS as well. Given the short time frame, it was no surprise we lost money, both in the UTs as well as the management / processing fees. But given the 4% interest in SA, we should be able to "recover" them within the next two year. So another tuition fee paid. 😓
Lesson learnt: Do your own research and learn / understand / digest all the schemes (e.g CPF) available to you before committing any big moves on your investments because no one will care about your money more than yourself!
Frugal Singa
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