*Official* Shiny Things club - Part 2

[loveboon]

The Online Trading webpage is really not the clearest -- "$10 if shares are traded in AUD, CHF, GBP, SGD & USD currencies ($10.70 with 7% GST)"

but if you clickthrough to the Fees Schedule link below it, page 4 on Minimum Brokerage (commission) Amount for Personal Banking Clients --

Thanks! Which means an USD4000 would be required to fully utilize the USD10 commission right?

 

[BBCWatcher]

Cfleee is right. It ends up being a US$10.70 minimum commission at Standard Chartered Singapore per IWDA trade, except for their "Priority Banking" customers.

Yes, the "crossover" point is a US$4,000 trade. (But is that relevant?)

 

[loveboon]

Cfleee is right. It ends up being a US$10.70 minimum commission at Standard Chartered Singapore per IWDA trade, except for their "Priority Banking" customers.

Yes, the "crossover" point is a US$4,000 trade. (But is that relevant?)

Just wanted to ensure I understood correctly on the commission. Will probably stick to SGD 3000 every 3 months

 

[BBCWatcher]

Just wanted to ensure I understood correctly on the commission. Will probably stick to SGD 4000 every 3 months

OK, but at that pace Interactive Brokers is probably more attractive for you. Let's do the math....

1. To buy S$16,000 worth of IWDA via Standard Chartered, with buys every 3 months, you'll need to pay approximately 0.8% (let's be very generous to Standard Chartered -- Tangent314 just reported their currency conversion cost is higher than that) (S$128 = about US$95) in currency conversion costs and US$42.8 (US$10.70 x 4) in brokerage commission costs. That's US$137.80 per year.

Plus you have the loss associated with delaying each purchase to "batch up." Let's suppose that IWDA has an average long-term yield advantage (versus holding short-term cash in Singapore) net of all costs of 4% per year. One third of your funds are delayed by 2 months, and another third are delayed by 1 month. A one month delay costs about 0.33%, so here's the calculation:

S$16,000 divided by 3 = S$5,333.33
S$5,333.33 multiplied by 0.33% = S$17.78
S$17.78 multipled by 3 = S$53.33 = about US$40

So your total expected annual cost of investing S$4,000 per quarter in IWDA via Standard Chartered is about US$177.80.

2. With Interactive Brokers the calculation is a lot simpler. At this level of investment flow (S$1,333.33 per month) your minimum and your maximum commission for both the currency conversions and the IWDA purchases, monthly, is US$10 until your total account value reaches US$100,000. So that's US$120 per year. You also have a very, very tiny currency conversion cost owing to the tight spread that IB offers. Let's overestimate that tiny spread and call it 5 basis points (0.05%), so rounded up that's about US$5 per year. Total annual investment costs at IB: US$125, or about US$50 less expensive than Standard Chartered.

We are not counting the reverse path in retirement (selling shares of IWDA, converting U.S. dollars to Singapore dollars, transferring Singapore dollars to a bank account in Singapore) in this comparison, but the reverse path is also more attractive from Interactive Brokers based on these respective two companies' current commissions and fees. And we're not counting the "cash drag" cost at Standard Chartered since evidently you've got to keep a minimum balance in a regular Standard Chartered account to avoid a fall below fee and to do business with their brokerage arm -- I believe I'm stating that requirement correctly.

Anyway, net net, IB is the lower cost choice for you.

 

[tangent314]

1. To buy S$16,000 worth of IWDA via Standard Chartered, with buys every 3 months, you'll need to pay approximately 0.8% (let's be very generous to Standard Chartered -- Tangent314 just reported their currency conversion cost is higher than that) (S$128 = about US$95) in currency conversion costs and US$42.8 (US$10.70 x 4) in brokerage commission costs. That's US$137.80 per year.

Sigh...
I just went to check *AGAIN* and this time the rate seems to have dropped to 0.41%

Not sure what's going on, but my best guess is that SCB's rate doesn't update as quickly or as often as xe.com so directly comparing the two rates at the same time may not show the real cost.

Another way to calculate SCB's actual rate would be to multiply their USD->SGD and their SGD->USD rates, and divide by half. So what I'm currently getting is 1.359298 * 0.742395 = 1.00913604 so this seems to indicate their rate maybe about ~0.45% assuming it is the same both ways, although from all my previous checks SGD->USD seem to have slightly higher cost than USD->SGD

Or perhaps SCB does change their rates during different times of day/week/month/year

 

[loveboon]

Sorry BBC, i plan to invest SGD 3000 instead of SGD 4000. In this case, would IB still be better than SCB? Sorry for the edit.

 

[BBCWatcher]

Sigh...
I just went to check *AGAIN* and this time the rate seems to have dropped to 0.41%

Not sure what's going on, but my best guess is that SCB's rate doesn't update as quickly or as often as xe.com so directly comparing the two rates at the same time may not show the real cost.

Are you observing "weekend/holiday exchange rate padding" perhaps? In other words, when Standard Chartered doesn't have access to a live and highly liquid foreign currency exchange market, they'll still quote a conversion rate but it'll be padded (more expensive), perhaps based on the cost of some short-term currency hedging (plus a markup) that Standard Chartered undertakes.

Another way to calculate SCB's actual rate would be to multiply their USD->SGD and their SGD->USD rates, and divide by half. So what I'm currently getting is 1.359298 * 0.742395 = 1.00913604 so this seems to indicate their rate maybe about ~0.45% assuming it is the same both ways, although from all my previous checks SGD->USD seem to have slightly higher cost than USD->SGD

Or perhaps SCB does change their rates during different times of day/week/month/year

I think it's probably the latter, or at least that's a reasonable guess. At IB you convert your currency when the forex market is open (and it's open a lot but not all the time), and you have that visibility.

....By the way, if we assume Standard Chartered charges 0.5% for SGD to USD on average, then the US$177.80 estimated annual cost I calculated comes down to about US$142. Interactive Brokers costs about US$125 per year, so IB still wins this particular comparison.

 

[crystalnox]

Cfleee is right. It ends up being a US$10.70 minimum commission at Standard Chartered Singapore per IWDA trade, except for their "Priority Banking" customers.

Yes, the "crossover" point is a US$4,000 trade. (But is that relevant?)

If one can fund their purchases using USD directly(FX cost irrelevant) but can only qualify for either SCB priority banking or IB’s US$100K requirement, SCB would be the better choice right? As priority banking with SCB also brings down the monthly S$10.70 cost of buying ES3, assuming < $3K worth of investments monthly.

 

[karlgantry]

Hey bros! where to invest money to get good returns?

 

[dullthings]

Thank you for your spreadsheet. I guess many of us who preferred to have actual figures to work with (beyond the tier-based guidelines in the book) enjoyed your spreadsheet very much.

The Online Trading webpage is really not the clearest -- "$10 if shares are traded in AUD, CHF, GBP, SGD & USD currencies ($10.70 with 7% GST)"

but if you clickthrough to the Fees Schedule link below it, page 4 on Minimum Brokerage (commission) Amount for Personal Banking Clients --

 

[BBCWatcher]

Sorry BBC, i plan to invest SGD 3000 instead of SGD 4000. In this case, would IB still be better than SCB? Sorry for the edit.

OK, let's use 0.5% for the currency conversion cost and S$3,000 per quarter (S$12,000 per year). Here we go....

Standard Chartered

Currency conversion cost = S$12,000 * 0.5% = S$60 = about US$45
Commissions = US$42.80
Time out of market costs = S$4,000 * 0.33% * 3 = S$40 = about US$30

Total estimated annual cost = US$117.80

Interactive Brokers

Minimum commission (also the max in this case) = US$120
Currency spread cost = about US$4

Total estimated annual cost = US$124

It's very close as you can see, but with these assumptions the upfront cost at Standard Chartered is going to be slightly lower. However, because these are so close I would still go with Interactive Brokers in this comparison even when focused on costs. I haven't included Standard Chartered's "cash drag" cost, nor the sale costs (the total drawdown costs when you're in retirement), and as your monthly savings flow increases (with pay increases, promotions, one-off bonuses, etc.) IB starts pulling clearly ahead in cost terms. Moreover, the US$120/year at IB decreases once your total account value hits US$100,000 since you then start to pay actual rather than minimum commissions, and actuals are lower. Even if you don't increase your savings flow above S$12,000 per year you'll still get to US$100,000 total account value after about 9 years, assuming IWDA delivers about 5% average yield per year net of costs and assuming the SGD-USD exchange rate over that period fluctuates around today's rate.

 

[loveboon]

OK, let's use 0.5% for the currency conversion cost and S$3,000 per quarter (S$12,000 per year). Here we go....

Standard Chartered

Currency conversion cost = S$12,000 * 0.5% = S$60 = about US$45
Commissions = US$42.80
Time out of market costs = S$4,000 * 0.33% * 3 = S$40 = about US$30

Total estimated annual cost = US$117.80

Interactive Brokers

Minimum commission (also the max in this case) = US$120
Currency spread cost = about US$4

Total estimated annual cost = US$124

It's very close as you can see, but with these assumptions the upfront cost at Standard Chartered is going to be slightly lower. However, because these are so close I would still go with Interactive Brokers in this comparison even when focused on costs. I haven't included Standard Chartered's "cash drag" cost, nor the sale costs (the total drawdown costs when you're in retirement), and as your monthly savings flow increases (with pay increases, promotions, one-off bonuses, etc.) IB starts pulling clearly ahead in cost terms. Moreover, the US$120/year at IB decreases once your total account value hits US$100,000 since you then start to pay actual rather than minimum commissions, and actuals are lower. Even if you don't increase your savings flow above S$12,000 per year you'll still get to US$100,000 total account value after about 9 years, assuming IWDA delivers about 5% average yield per year net of costs and assuming the SGD-USD exchange rate over that period fluctuates around today's rate.

Thanks BBC! I have decided to use IB instead. Just one last question, the annual cost remains approximately USD124 regardless if i invest SGD1000 monthly or SGD3000 quarterly right?

 

[BBCWatcher]

If one can fund their purchases using USD directly(FX cost irrelevant) but can only qualify for either SCB priority banking or IB’s US$100K requirement, SCB would be the better choice right? As priority banking with SCB also brings down the monthly S$10.70 cost of buying ES3, assuming < $3K worth of investments monthly.

If you're getting U.S. dollars directly you'd have to convert them to Singapore dollars to go buy ES3. Who can do that for the rock bottom lowest price? Interactive Brokers, of course.

It seems rather far fetched that you'd have more or less precisely the U.S. dollars you need for your global stock index fund (IWDA) and precisely the Singapore dollars you need for your local index fund(s) (ES3/G3B, MBH). Who earns paychecks like that? Not many people, right?

 

[BBCWatcher]

Thanks BBC! I have decided to use IB instead. Just one last question, the annual cost remains approximately USD124 regardless if i invest SGD1000 monthly or SGD3000 quarterly right?

No, not exactly. The "time out of market" cost that I calculated should properly be added if you delay 2 out of 3 of your S$1,000 monthly installments in order to batch them up into S$3,000 lumps. You're investing in IWDA because you expect it to go up over the long-term, on average at some decent or better percentage better than you can manage for short-term cash in Singapore. It's reasonable to assign some estimated average cost for investment delays, which is what I've tried to do.

Aren't you working and earning a monthly paycheck? By law you're supposed to be paid at least monthly in Singapore. You pay plenty of bills monthly, including your electric bill I presume. How about paying yourself monthly, too? That's ordinarily what a working adult does when saving and investing for the long-term.

 

[gmonster]

With the market going on such a bull-run, will it be advisable to DCA into IWDA or Lump sum?
Let's say I have 20k cash to put in, what will you guys do if you are me?

 

[BBCWatcher]

With the market going on such a bull-run, will it be advisable to DCA into IWDA or Lump sum?
Let's say I have 20k cash to put in, what will you guys do if you are me?

This question comes up a lot. In terms of probabilities (according to studies looking at historical stock market data), a lump sum purchase is the winning move. However, psychologically you may freak out if stock markets correct or crash shortly after you buy S$20K worth. Statistically, based on past stock market data, it's very nearly as good -- also assuming the brokerage costs are reasonable -- to divide your lump sum into a few monthly installments and buy in increments.

Usually I do the latter, even though I don't think I've ever freaked out about stock market swings.

Another thing to think about is whether this S$20K windfall is genuinely a one-time windfall or not. That is, are you simply seeing excess cash pile up -- a happy problem to have -- and you really ought to increase your monthly investments to a new, higher level that you feel comfortable sustaining? Think of your day-to-day supply of funds -- your ordinary bank account -- as something you want to manage much like a water reservoir behind a dam. You want the reservoir to be not too high and not too low, to get a nice, steady, continuous flow over the electric generating turbines and/or to maintain a good drinking water supply at all times. So occasionally you need to adjust the flow rate, which in this case is the buying rate for your long-term investments, if your "reservoir" gets too high and can sustain a higher flow rate. I don't know if that analogy helps you, but it's how I think of it.

 

[loveboon]

No, not exactly. The "time out of market" cost that I calculated should properly be added if you delay 2 out of 3 of your S$1,000 monthly installments in order to batch them up into S$3,000 lumps. You're investing in IWDA because you expect it to go up over the long-term, on average at some decent or better percentage better than you can manage for short-term cash in Singapore. It's reasonable to assign some estimated average cost for investment delays, which is what I've tried to do.

Aren't you working and earning a monthly paycheck? By law you're supposed to be paid at least monthly in Singapore. You pay plenty of bills monthly, including your electric bill I presume. How about paying yourself monthly, too? That's ordinarily what a working adult does when saving and investing for the long-term.

BBC, in your opinion, would investing SGD1000 per month be better than SGD3000 quarterly to avoid the “time out of market cost”? In this case, IB would still be more economical (same USD120 commission per annum) due to the forex spread offered by SCB right?

 

[flowerpalms]

I will still stick to DCA monthly

With the market going on such a bull-run, will it be advisable to DCA into IWDA or Lump sum?
Let's say I have 20k cash to put in, what will you guys do if you are me?

 

[crystalnox]

If you're getting U.S. dollars directly you'd have to convert them to Singapore dollars to go buy ES3. Who can do that for the rock bottom lowest price? Interactive Brokers, of course.

It seems rather far fetched that you'd have more or less precisely the U.S. dollars you need for your global stock index fund (IWDA) and precisely the Singapore dollars you need for your local index fund(s) (ES3/G3B, MBH). Who earns paychecks like that? Not many people, right?

Not too common but employees of US companies sometimes receive stock options/grants which are denominated in USD, and plain old wages paid in SGD.

 

[fliggy]

Hey ST,

I recently relocated to Singapore and found your book immensely valuable! I am feeling very lucky that I didn't end up buying some lousy endowment products.

Here's my question
I have some USD that I saved while working in the States. The equity part of the investment strategy in your book suits me well, but I am looking for a USD-denominated low-risk/bond investment. At this point of time, I am quite reluctant to convert my USD into SGD, and also a little worried that a Feds' interest rate hike would affect bond ETFs. Any suggestion would be appreciated!

(And I am a non-US person, if that matters)