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TODAY MONDAY 19 AUGUST 2013

EVERYONE CAN BE FINANCIALLY SAVVY

Making your money work smarter for you

FROM DERRICK GOH Head of POSB

PROJECTED EXPENSES OF 4-ROOM HDB HOUSEHOLD*

Income Household expenses Personal expenses (including CPF contributions, etc) - 25% of income Savings - 10% of income Funds available for investment S$5,114 -S$3,057^ -S$1,278

PHOTO: THINKSTOCK

ETFs: A gateway to low-cost investing

Exchange-traded funds offer a low-cost and efficient way to access an asset class
If youre looking to invest in equities, the prospect of picking the right stocks or sectors to put your money in can be daunting for newcomers. Exchange-Traded Funds (ETFs) are a relatively easy way to get exposure to a basket of stocks or bonds without requiring a substantial upfront investment.
ETFS EXPLAINED

Becoming financially savvy isnt as difficult as it sounds. POSB and its experts give practical tips and insights in this fortnightly column.
ARE YOU PLANNING BETTER FOR RETIREMENT?

HOW ETFS CAN BENEFIT YOU

Long term Grow your retirement savings with a small monthly investment. Low cost ETF fees and chargers are usually low, so you can make more money. Convenience Some banks let you invest or manage your funds from ATMs. Flexibility Your monthly investment can be changed to suit your needs.

The value of ETF funds domiciled in Singapore is about US$2.7 billion, (S$3.4 billion) compared to US$26 billion to US$36 billion in Hong Kong, according to data from ETFGI.
RISK INVOLVED

These are funds listed on a stock exchange that pool together money from different investors with the objective of producing a return that tracks or mirrors a specific index such as a stock or commodity index. For instance, investing in an ETF that tracks the FTSE Straits Times Index (STI) allows you to be exposed to blue-chip stocks in the Singapore market, without having to buy the individual stocks that make up the index. As these funds are listed on a stock exchange, you can buy and sell units throughout the trading day. ETFs are designed to track the underlying index, and tend to have fees and charges that are usually lower than those of actively managed investment funds.
GAINING GROUND

As a low cost gateway to the broader stock or bond market, ETFs have been gaining popularity here as more investors look to diversify their portfolios in the current uncertain investment climate. Around 30 ETFs are listed on the Singapore Exchange, according to independent ETF consultancy ETFGI. While interest has been growing in these funds, the size of the market still has much room to expand when compared with more established markets like Hong Kong.

Yet, like any other investment, they are not risk-free. Your principal is not guaranteed, which means you could potentially lose all, or a portion, of your initial investment. The main risk faced by ETF investors is the volatility of the specic benchmark tracked, or market risk. Any price swings in the component stocks of the STI, for instance, will impact the performance of the ETF tracking the index. Theres also a risk that designated market makers which provide liquidity for ETFs by providing buying and selling prices throughout the day fail in their obligation, perhaps due to insolvency or extreme market conditions. In such cases, investors may have difficulty selling their units. There are many different types of ETFs available, each with their own investment objectives, strategies and risks. When deciding which to invest in, it helps to be clear about your investment goals, personal nancial circumstances and risk prole. You should also check that the rm managing the fund have a credible track record of performance.
This is the rst story in a 19-part collaboration between TODAY and POSB.

Its also a good idea to review your retirement planning regularly. Chances are, the retirement goals you set when you were 20 years old would have changed by the time youre in your 40s. And even if your goals havent changed, external factors may mean that youd have to re-look your retirement needs.
Derrick Goh
HEAD OF POSB

For many who are just starting out in the workforce, retirement may seem a long way off. The average life expectancy in Singapore has increased from 66 years in 1970 to 82 years in 2010, an increase of 16 years. This means that you will spend around 17 years in retirement if you retire at the age of 65. So its a good idea to start planning for your retirement early. The sooner you start, the smaller the amount of money youd have to set aside each month. Its also a good idea to review your retirement planning regularly. Chances are, the retirement goals you set when you were 20 years old would have changed by the time youre in your 40s. And even if your goals havent changed, external factors may mean that youd have to re-look your retirement needs. For instance, an increase in living costs may require you to set aside a greater portion of your funds for retirement. You should also guard against the risk of retiring asset-rich but cash poor, which is not the best position to nd yourself in. Often however, inertia prevents many of us from exploring better growth products to invest in.
HOW ARE YOU SAVING FOR RETIREMENT?

-S$511 = S$268

*SOURCE: POSB ^SOURCE: REPORT ON THE HOUSEHOLD EXPENDITURE SURVEY, 2007/2008, DEPARTMENT OF STATISTICS, MINISTRY OF TRADE AND INFORMATION

Given the current low interestrate environment, its a good idea to consider investing using some excess cash in your savings or CPF accounts, so that ination doesnt eat away at your savings.
WHY SHOULD YOU CONSIDER THE POSB INVEST-SAVER?

Surveys have shown that many people are relying largely on cash savings or deposits as their main source of retirement income to help sustain their lifestyle. But according to gures in the Report on Household Expenditure Survey, 2007/2008, the average family living in a four-room HDB at has less than S$300 to invest each month after setting money aside for daily expenses and shortterm savings. In addition to this, more than 40 per cent of the money in our Central Provident Fund (CPF) accounts are tied up in property, with just 7 per cent used for investment such as unit trusts and insurance policies.

Because its a simple, affordable solution you can adopt for your retirement planning, which is great if your current nancial commitments mean that you cant set aside a big sum for retirement planning. POSB Invest-Saver is a combination of a regular savings plan and an ETF. This plan was introduced to encourage us to start planning early for our retirement. It also helps to instill nancial discipline in a fussfree manner. You can start by setting aside just S$100 a month in the Nikko AM Singapore STI ETF, which tracks the STI and enables you to participate in the growth of Singapore blue-chip companies. Fees are also kept low to ensure that your money is maximised for the investment. Its also a good solution for those who would like to diversify their portfolio.
HOW CAN YOU INVEST IN AN ETF?

If you want to invest in the POSB Invest-Saver, you simply need a POSB account and you can register for the scheme online or at any of the 1,100 DBS/POSB ATMs islandwide. The monthly deduction would then take place via GIRO. Otherwise, you can also open a Central Depository account and trade through a broker to buy an ETF.