In a blink of an eye, it is already Lunar New Year 2021. I would hereby like to wish everyone a happy Lunar New Year! May the year of the Ox brings good fortune, health and prosperity to all of you.
Usually towards the end of the year, there will be a lot of marketing and news about (1) topping up of CPF and (2) open/top-up of SRS before 31st December as these financial manoeuvres qualifies for tax reliefs according to IRAS. (Do note that there are differences between tax deductibles and tax reliefs). For those who have started to contribute to SRS, I hope you have invested your SRS monies and put it to good use. If not, I will be sharing what I have done with my SRS monies and hope will give you some ideas to invest your SRS monies.
My SRS investment objectives: Long term and global market exposure
SRS is a form of tax deference for tax residents of Singapore. One can only start to withdraw SRS when he/she reaches the official retirement age when one made his/her first SRS contribution. Therefore, I feel that the time horizon for SRS investment should be long term and also seek global market exposure. However, the options for SRS investments are a bit more limited compared to cash investments. For instance, equity investments for SRS monies are limited to STI equities. Furthermore, the brokerage fees for SRS monies for STI equities are not cheap, most charging minimum of S$25 for each trade. It wasn’t until Jul 2020 when FSMOne started to offer cheaper brokerage fees at minimum of S$10 per trade. Nevertheless, it is still not too ideal.
What do I invest my SRS in? Endowus, StashAway and LionGlobal All Seasons Fund (Growth)
I decided to invest my SRS monies in three types of investments to meet my investment objectives. They are namely Endowus (Advised Portfolio: 100% Equity), StashAway (Risk Index: 36%) and LionGlobal All Season Fund (Growth).
In addition, I would also like to invest my SRS monies effortlessly every month instead of a lump sum. All these three investments allows for recurring monthly investments. While StashAway and Endowus allow me to choose any date of the month for recurring investment, POEMS only allows for the monthly recurring investment on the 7th of each month.
I have always wanted to try robo-investors or robo-advisors. After calculating the total costs, my personal conclusion was that I will not use cash to invest with Robo-investors. Instead, it makes a lot of sense to use robo-investors to invest with SRS because the commision cost is cheaper (compared to the local brokerage cost) and there are options for global market exposure. As shown in Fig 1, you can clearly see that each of them provides a very global market coverage. In the current market, there are only two robo-investors, Endowus and StashAway, which allow for investment using SRS monies.
I had been looking at LionGlobal’s All Seasons Fund (Growth) since it launched in Jul 2018 because it has a rather global market exposure. The other notable Unit Trusts are Infinity Global Stock Index, Infinity US 500 Stock Index and Infinity Europe Stock Index. Furthermore, LionGlobal’s All Seasons Fund (Growth) has a relatively low expense ratio. Its expense ratio is 0.49% as of 31st Dec 2020 and the fund manager has committed to cap the expense ratio at 0.5%. If the actual expense ratio goes above 0.5%, the cost will be borne by the fund manager.
Referring to Fig 2, I have calculated the effective blended fund levels fees for the robo-investors based on the weightage and expense ratio of each fund.
– Endowus (Advised portfolio 100% equity) fund level fees : 0.396%
– StashAway (Risk Index: 36%): 0.3201%
– LionGlobal All Seasons Fund (Growth): 0.49%
What are the total fees?
The total fees that will be incurred for these three investments with SRS monies are tabulated in Fig 3. There are no one-off buy/sell fees for all of them. However, Stashaway’s total fees is the highest amongst the three, at up to 1.1201% which is mainly due to the higher platform fees. This is followed by Endowus at 0.796% per annum. Cheapest is LionGlobal All Seasons Fund (Growth) as POEMS does not change a platform fee and LionGlobal, the fund manager, caps its expense ratio at 0.5%.
Performance so far
As I have only begin the monthly recurring investments in November 2020, there are only a few data points for reference. In Fig 3, the diagram shows the performance of each of my investments since November 2020. However, its still too early to tell the long term performance. I will update this performance chart in June 2021.
SRS is a tax-saving tool that many Singaporeans can make use of. However, it is also an investment tool that can help to build one’s retirement funds. We are fortunate that there are more cost effective SRS investment platforms. Based on Ministry of Finance’s SRS statistics (source), 28% of the S$10.68 bil SRS monies were left as cash. This works out the S$3bil of uninvested SRS monies. If you are one of those who have yet to invest SRS, it is never too late to start to do so. On the flip side, for the fund managers, there is S$3bil of uninvested SRS monies and at 1% fee, that is S$30mil per annum of untapped business.