Thursday, August 21, 2014

RSP WARZ: POSB vs OCBC vs Phillip

Following a post I read from the Teenage Investor and our short conversation, I thought I would like to look at the 3 main RSP options that is available to all retail investors - POSB, OCBC and Phillip.

Of course, the comparisons of these 2 or 3 investment schemes have been done to the death. The best resource that I found was by BigFatPurse. The next are by Calvin Yeo and the Turtle Investor.


Although BigFatPurse made his own table which is pretty much a splitting image of this, I wanted to create my own table just for the sake of doing one myself.

Now that the basic facts and comparisons of each other 3 plans are out there, how do you pick which plan for yourself? My answer: depending on the investment amount.

I wanted to make a fancy graph, but I'm too lazy to do it in excel and my drawing is horrible.

As long as you're investing between $100 to $500 a month, you should pick POSB as transaction costs as a percentage of total investment is minimized. This will be between $1 to $5 depending on your regular investment amount.

If you're investing between $500 to $3333.33 a month, you should pick OCBC to minimize transaction costs. This will be within the range of $5 to $10 a month depending on your regular amount.

If the amount is above $3333.33, then POEMs is the way to go, as transaction costs will be minimized to just 0.2% of the investment amount. The minimum transaction cost will start from $10 since that is the point of indifference from OCBC.

So, to summarize:


Your investment amount should actually dictate which plan is the most optimum for you. Unfortunately, most investors interested in these kind of plans are not able to commit large amounts of capital, therefore in theory only the POSB and maybe the OCBC plan is viable.

Personally, I would not choose any other underlying investment other than the STI ETF. Diversification is really paramount and this route of investment is more about safely investing for the long-term. Picking individual names is making an active decision (which most investors are often poor at) and also throwing away the benefits of cheap diversification out of the window.

However, those that want to actively punt on certain names and accumulate fractional lots of some of the expensive tickers should consider OCBC for that. At the end of the day, for $10.70, your holdings from this RSP can be transferred to your CDP account for proper management. With the promotional minimum transaction cost of $5 temporarily waived, it makes OCBC more attractive. However, promotions that are not permanent are just gimmicks to draw and lock in lazy capital. I would rather stick with POSB unless I have more than $500 to squirrel away every month.

I personally find that OCBC is the best of the 3 plans, with the glaring exception of a minimum investment of $500 to be cost-effective. The minimum of $500 is sadly a deal breaker because I find that amount too large personally.

POEMS is actually also not too bad, but the commission is always slightly higher than OCBC until $3333. The good news is that POEMS will automatically reinvest dividends, and neither of the other 2 plans do. If reinvesting dividends appeals to you, starting from $600 onwards, POEMS becomes cheaper than POSB, so it would make sense only if you have such large regular capital to invest.

At the end of the day, I think POSB is the only practical plan. If you ever need to liquidate your entire holdings (which is the only option for POSB), you can cash out and use what you need and then take advantage of SCB and purchase lots of Nikko AM STI ETF. Hopefully then, your financial situation will be much better that it is, so it would be feasible to purchase single lots directly through SCB.

Since I have enough capital to buy a lot of Nikko AM STI ETF, and I am completely not bothered at all by manually going into my brokerage account and purchasing lots from the exchange, these plans do not apply to me. However, if I had any friends who are starting out and are looking for a simple way to start investing, I would point them to the POSB Invest Saver.

14 comments:

  1. May I know how do I manually purchase a lot of NIKKO AM STI ETF from the exchange?

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    Replies
    1. Hi TME,

      You will need a brokerage account, and then you should look for the ticker "G3B".

      Do note the minimum commission costs to buy a single lot of Nikko AM STI ETF, it can amount to a large chunk of your costs if the minimum commission is high.

      Delete
  2. Hi, thanks for the thorough explanation. I'm an NSF and have been investing $100/mth into the POSB STI ETF plan for the past few months. Using iBanking, if I'm not wrong there's an option to reinvest the dividends, perhaps you would like to confirm this? Also, I've only recently got introduced to investing. So I would like to ask, for these kinds of long term DCA investments, does timing when to enter the market matter? I basically signed right up when I knew about it as it's the only investment I can afford and allowed to do (as i'm under 21). However I recently spoke to a POSB consultant and he seemed guarded about investing into the index as it's quite high now. So I'm pretty confused. What are your opinions? Thanks in advance!

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    1. Hi Anon,

      Glad my article has helped you :)

      I have confirmed and even written to DBS/POSB for them to include an option to reinvest the dividends because this is currently not available. Dividends will be credited to your account. However, they have said that they are looking into dividend reinvesting as a possibility in the future. Fingers crossed for that option, it will make managing the dividends much easier for us young people in our wealth accumulation phase.

      DCA is meant to prevent you from market timing. It is a good accumulation method, the simplest one. I think value averaging is a better system, but it requires more work, more knowledge and more discipline. Those who don't want to be so involved with their investments are probably much better off with DCA since it is more straight-forward to understand and disciplined in its enforcement.

      I think deciding about timing the market is dependent on your investment horizon. Is this money going to be money that you will use to fund your retirement? Or is it money that you will use for further education or getting married (expenses in the near term)? If it is the first scenario and your horizon is long, I personally would just invest, but I am be prepared to stomach 50% paper losses and not sell. I think majority of people cannot stomach such losses. If you need the money in the near term, then yes, you might want to avoid the market if it is indeed "high". But then again how do you know that it is "high"? If you have such insider information, please let me know more, haha!

      I am not a financial professional or a consultant, so I can only think outloud. Please don't mistake this for any directed advice, this is just kopitiam chit chat :)

      Delete
  3. Hi, thanks for your reply and yes, I am fully aware these are all just general information and I will seek advice from a financial adviser blah blah haha. Anyway, regarding the dividends reinvesting option I asked because in the POSB iBanking platform under 'Unit Trust/Exchange Traded Fund Change in Dividend/Maturity Instruction (Cash)' I am able to select NIKKO STI ETF and select the 'Reinvest' option, which states 'Only applicable for Evergreen Fund'.

    Also, for the POSB Invest Saver, are the ETF units stored with POSB and are these units actually backed up by the actual shares of the 30 blue chip companies? Is there a difference if the units are stored with the bank or the CDP? Sorry I have to ask these questions here, the POSB consultant I spoke to did not have the knowledge to answer them.

    Thanks again.

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    Replies
    1. Hi Anon,

      I don't know why such an option is available, but to my knowledge the dividends are not reinvested. Maybe its a glitch in the system.

      The ETF units are held in name by DBS who will be your custodian. The ETF provider is Nikko AM (coincidentally owned by DBS) which has the actual shares of the 30 blue chip companies.

      So you own the ETF units and its underlying shares indirectly through DBS and Nikko AM.
      DBS owns the ETF units directly, but owns the underlying shares indirectly from Nikko AM.

      The difference between the bank owning your shares (custodian) and your owning them directly (CDP) is your rights as a shareholder. Unless you plan to be an activist shareholder, there is not much difference in my opinion. There is also counter-party risk that POSB screws you over and steals your money and doesn't give your ETF units, buttttttt I think that is a small risk.

      Personally I don't trust anyone in a bank to give financial advice. Those that are qualified to give proper financial advice don't bother with small fish like us. We're either on our own, or assigned to young kids who probably know less than you do.

      Delete
  4. Ah right understood...thanks for all the info :)

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  5. Hi, I am able to afford investing $600 per month and is deciding between Philip SBP and SCB. I noted that the PSBP has higher charges as compared to SCB. I don't really mind investing monthly manually but the disadvantage of SCB which hinders me is the custodian account. So which one should i choose?

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    1. Hi FR,

      I can only think outloud and I cannot offer you any advice because I of course do not understand your situation.

      At $600, Phillip will be taking 1.6% from you as transaction cost. Why not OCBC or POSB instead? SCB will only be taking 0.25%. However, it is no guarantee that SCB will keep their broker fees without any minimum commission forever.

      The problem of custodian is not that the issues are not officially held in my name, but rather than that they can change their pricing policy at their whim. At least in CDP you can buy from 1 broker and sell from another.

      That said, I still use SCB because in the worse case scenario, I can just pay a fee and transfer my holdings out to my CDP account. The risk of SCB failing as a custodian is very very very low in my opinion.

      If I was you, I would re-evaluate why I prefer Phillip instead of OCBC or POSB. Also, I would weigh the pros and cons of custodian vs CDP.

      Delete
  6. Hi GMGH,

    Would just like to confirm, for SCB - it is possible to transfer your holdings out of the custodial account into your own CDP? Don't see this information anywhere on their website, hence been thinking twice about opening an SCB account to trade.

    Also, since we can start buying shares in smaller lots of 100 from Jan 2015 onwards, do you think the other banks might start lowering their minimum commission fees?

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    Replies
    1. Hi Anon,

      https://www.sc.com/sg/promotion/securities-trading/promotnc.html

      Don't worry, GMGH got your back anon. I am just not sure how current the fees are. You might want to write SCB an email and get the info black and white from them.

      In the worst case scenario, you can always just liquidate from SCB and just buy back from open market through a CDP broker.

      And yes, I do think that the other banks will lower their minimum commission fees from Jan 2015 onwards. However, I strongly doubt zero min comm like SCB, but perhaps $5 a trade instead of $25. We shall see!

      Delete
  7. point 10 of the FAQ page seems to suggest partial redemption is possible? we can key in the number of units to redeem, can anyone confirm?

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  8. Hi there, I am also intending to invest <$500 a month in the STI index using POSB Invest. This ETF does not pay out dividends right, so essentially it is a buy and hold 'stock'?

    So when the index is low, more lots will be purchase and vice versa?

    - BL

    ReplyDelete
    Replies
    1. Hi BL,

      This ETF pays out dividends twice a year.

      For any investment, buy low, sell high :)

      Delete

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