One bad thing about POSB InvestSaver that no one has talked about

Regular savings plans like the POSB InvestSaver or OCBC Blue Chips Investment Plan (BCIP) were the talk of town quite a while ago. They implement the principles of index investing and dollar-cost averaging, and is especially suitable for investors with little capital or little investing experience.

When I first started my journey in July last year, I subscribed myself to the POSB InvestSaver plan with a meagre sum of $100 a month. With the 1% charge, units of the Nikko AM STI ETF are bought with the remaining amount. For myself, the charge would be $1 and units are purchased with a total sum that usually lies between $97-$99.

So many articles on the interweb have featured about the works of the POSB InvestSaver. However, one tiny detail was probably not pointed out.

When redeeming the units (i.e. selling), you are in no position to control the price at which the units will be sold. Once you click “Redeem RSP” on your i-banking platform, it gives an indicative net asset value per unit (e.g. $3.20). But in actual fact, that value is subjected to changes, depending on when the units are sold and the average price at which all the units (i.e. your units and other people’s units) are sold . So, even when the day’s highest were sold at $3.22, you might eventually be given a price of 3.17 per unit. And there’s no way to reverse the process if you are unhappy with sell price.

Luckily for me, because I bought so few units, $10 was not a huge difference to me. But I can imagine it being a significant figure to some if the capital invested was greater. So do consider this when deciding for such a plan!

“I should have bought them!”

There were 4 stocks that I had wanted to wait for a lower buy price but who knew they were actually at their lowest when I noticed them and have now gone much higher. T.T

Lesson learnt perhaps? Never be too greedy.

They were:

  • Global Logistics Properties
  • OCBC Bank
  • Frasers Centrepoint Trust
  • ComfortDelgro

It’s ok, I’m sure patience will pay off eventually.

Charting my progress

A sequel to my post “my first stock picks“. Haven’t done much since then. Like I mentioned, I’m testing the waters as a complete beginner here.

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My Thoughts:

  • SIA: my very first buy in Sept 2016 (6 months ago). Tiny regret for that decision but hey, I’m treating it as “school fees” for myself. Lesson learnt: have stricter stock picking criteria and to make more prudent decisions in the future.
  • Singtel: bought at a not so desirable price of 3.93. I was too eager when I started buying stocks for my portfolio during those first initial days. Lesson learnt: be patient.
  • All others: entered at fair prices, which I am very satisfied with. Especially with DBS at 14.98.

Overall, based on market close prices today (1 Feb 2017) and including all commissions (approx $17 per transaction) and dividends received during these 6 months, my portfolio as a whole has a net gain of 3.96%. Baby steps! 🙂

Dividend Investing: Learning Points

Below is a summary of my learning points from an online dividend investing course I purchased.

Dividend Stock Picking Criteria

  1. Company’s credit rating of B+ or better
  2. Net income grows 5-10% annually + stable / growing operating cashflow
  3. Consistent growth in cash / cash equivalents for past 3 years or longer
  4. Debt coverage ratio of at least 3 : 1
  5. Positive business growth and integrity of management
  6. Dividend yield > 4%
  7. Dividend growth rate > 5%, 8-10% is ideal.
  8. Dividend payout ratio: 30-60%
  9. Average ROE (past 3-5 years) > 12%, previous year’s ROE > 15%
  10. Insider action

When to sell

  • Faltering dividend / dividend that does not grow as it should
  • Change in company’s dividend policy
  • Unexpected growth in dividend payout ratio
  • No dividend increase for a full year
  • Dividends suddenly been cut

The course was pretty useful in that it spelt out everything clearly, especially for beginners like myself.

My first stock picks

For dividends
Singapore Airlines : 200 shares (~$2k)

Capitaland Limited : 300 shares (<$1k)

Singtel : 200 shares (<$1k)

DBS: 100 shares (~$1.5k)

For capital appreciation

OUE Limited : 500 shares (<$1k)

Total portfolio: <$6.5k

Wish I had more capital to invest but approx $5k is my psychological threshold I think. At this point in time at least.

Am I ready?

So… I’ve been reading up and I think it’s time to give it a shot. Here’s what I have roughly decided on as my current approach to personal finance for the short term at least.
OCBC 360 account with OCBC 365 credit card for savings

OCBC FRANK account for everyday use

War chest in Singapore Savings Bond / Fixed Deposit

$100 monthly via POSB InvestSaver for Nikko AM STI ETF

Majority of stock investing portfolio on dividend stocks – blue chip companies and REITS

Minority of stock investing portfolio for value investing

With my OCBC securities account up and running and the FRANK-YIP promo set up, it’s time!

My First Step Towards Investing

It’s been 9 months into my job. I’ve been reading finance blogs for the past 1.5months almost like a new favourite hobby. I’ve been convinced that we should start investing early to take advantage of the power of compounding. Am not exactly the youngest but hey, 24 ain’t a bad time to start.

My plans for now is to seek more financial knowledge through reading of books, blogs and attending courses. Don’t wanna start this game not knowing how to play, the rules or the forfeits. Been on a lookout for courses and have added quite a few to my wish list. I’ve set myself a total budget of $500 for them. Am so excited but at the same time don’t wanna put a time pressure on myself for when I should start investing. So I’ll start when I think I’m ready. And I hope it’s soon.

Meanwhile, I’m looking into opening a brokerage and CDP account. See this article for insights on how to choose a brokerage firm. I’ve decided to go for OCBC Securities, just for convenience sake as I currently have a OCBC 360 account and a basic passbook savings account. Also, the fees across brokerage firms don’t actually differ much (esp if you are looking at wanting to keep your shares in your own CDP account rather than a custodian account).

Young Investor Programme Account

I’ve been eyeing this account mainly because it provides free seminars that I think will contribute to my acquiring of financial knowledge. The seminars are free and cover the basics of investing, fundamental analysis, technical analysis, etc. This I find really attractive.

The brokerage fees are the same as the basic cash trading account and after 2 years of opening the account, you’ll “graduate” and your account will be converted to the basic cash trading account (or an account of your choice).

Another thing that is appealing to me are the promotions that are currently ongoing till 31 December 2016. Both promotions cannot be used together but at least you get to choose!

Promotion #1: Invest and get up to S$50 trade commission rebate for your first trade!

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Promotion #2: If you GIRO-link your trading account to your FRANK account, the basic commission fee will be reduced from $25 to $15 for the first two years of account opening in the form of rebates!

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So yes, I’m considering opening a Frank account with OCBC and possibly cancelling my basic passbook savings account because of the meagre interest (0.05% as compared to 0.2%-0.4%). The reduction in minimum commission is a great deal for me as well because I wouldn’t have much capital to invest. So, reducing commission fees will really save me quite a bit!

Do you agree that I should open this brokerage account?