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“Bei kambing” passive index investors – Part 1 of 2
By Singapore Man of Leisure  •  September 26, 2016
love to watch documentaries. For many years, I've always believed gravity is pulling us down to Earth - the Newtonian and main stream view that the common man in the street knows and accepts as "correct". What do you know? After watching documentaries on Einstein and his General Theory of Relativity, I've learnt that its in fact the curvature of space-time above us that's pushing us down to Earth... Of course those of you who studied Physics at tertiary level would already know. Maybe. Bei Kambing understanding versus Erudite understanding The same gravity example can also apply to Low Cost Passive Indexing. If you look around our blogging community and forums, you can spot these 2 different creatures. One just have a single STI ETF (single country focus) and that's that; the other usually have several ETFs that include more than one asset class, and covers either globally or at the very least covers one large regional geographic area. I rather not point these bloggers out as its better you discover them yourselves. Low cost is just one part of a Passive Indexing Strategy If we buy unit trusts from a bank, the usual commission is 5% - unless there's a promotion. The same unit trust can be easily bought at 1 to 2% commission through on-line unit trust distributors - depending on your order size. Sometimes there are even no-load zero commissionoffers! How? If I buy online can my actively managed unit trust be considered "low cost" now? What? The annual management fees are more expensive for actively managed unit trusts than ETFs. So that tiny 1 to 2% makes a lot of difference? Of course it does! It we compound it by 20 to 30 years. Fully agree with you! Now it's my turn to ask you some questions... On an intraday level, did you notice there can be a 1-2% difference between the daily high and daily low for the ETF quoted price? So 2 person buying the same ETF on the same day can receive 2 totally different entry prices with difference ranging between 1-2%, can we agree on that? You know what's coming... Wink. So 2 person who do dollar cost averaging on a monthly basis can have a 5% difference in entry prices if one bought on 1st of June and the other 30th of June. Possible right? And if the same 2 person passively dollar cost average into a ETF annually, the differences in entry prices can actually be more than 10%! Is it fair to say the "unlucky" passive dollar cost averaging person as "high cost"; while the "lucky" person as "low cost"? Try compounding the differences for the next 20-30 years... Yeeks! You tell me, does the tiny 1-2% difference in management fees between actively managed unit trust and ETFs still such a big deal? P.S.   In part 2, I'll demonstrate why buying a STI ETF is an active decision; and this decision has a even bigger impact 20-30 years going forward than low costs...
Singapore Man of Leisure (welcome to my blog; just google it!)
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By Singapore Man of Leisure
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