In the last episode, I explained how one’s investment can compound and grow like magic, and costs can also compound and grow like crazy. We can’t control our investment returns, but we can certainly control our costs to make sure you, not our broker, bank, or fund manager, get most of the investment returns. 3 tips I’d like to share:
Know What Fees You Are Paying
Be very clear about what fees are you paying for each transaction, and if there are any recurring fees that you are being charged. Brokerage fee, platform fee, management fee, foreign currency exchange fee, etc. Rank them from the highest to the lowest, and think about what you can do to reduce the cost. If you are paying 1 or 2% fees for any fund, it’s a big red alarm. Long-term return on stocks is only 4~6% percent per year, if you are giving 1~2% to your fund manager or broker, you are losing a quarter of your returns easily!
Don’t Forget About the Tax
Besides all the fees you are paying, another thing you need to take note of is the tax implication. In Singapore, unlike the US, we are very fortunate that we do not have a capital appreciation tax or dividend tax. But there are still things to consider to make your tax payment more efficient. E.g. invest in your SRS (supplementary retirement scheme) to reduce your income tax, or invest in an Ireland-domiciled fund instead US-domiciled fund for better tax. I will cover this in future episodes.
Be Brave When Making Changes
You find you are paying too many fees or taxes and wish to make a change, but it’s too much trouble or too costly to make a change. You might need to transfer your shares to the new broker (which costs money), or sell your old funds and buy new funds (which can be hard to execute). What I want to say is, be brave and make the change. Make a plan and execute it. The longer you delay it, the more fees you will pay.
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