DIY Investing is More Expensive Than You Realise
Many do-it-yourself (DIY) investing proponents laud the idea of building and managing your own investment portfolio to keep cost to a minimum. Afterall, buying popular ETFs such as Vanguard’s S&P500 ETF only has an expense ratio of 0.03%.
However, if you were to dig deeper, there is more than meets the eye.
Using an investment holding period of one-year, we have to firstly consider broker fees when purchasing securities. In addition to commissions which are often subject to minimum commission fees; often, brokers also apply custody fees, platform fees, and maintenance fees on top of everything else.
For U.S. brokers that offer low or no commission trades, they often engage in payment for order flows (PFOF). PFOF is basically compensation that the brokerage firm receives for directing its customer’s orders to a specific market maker. In the Guidelines to MAS Notice SFA 04-N16, it says “PFOF introduces conflicts of interests is is likely to cause harm to customers…” MAS has since instituted a ban on PFOF in Singapore on 1 April 2023. The UK, EU and Canada have also taken similar steps.
In addition to everything so far, there’s dividend withholding taxes of 30% for Singapore investors buying U.S. listed securities. That adds 0.60% per year to costs assuming a 2% dividend yield.
The straw that breaks the camel’s back has to be estate duty. It is a tax that is typically applied to the market value of your assets when you pass on (amounts in excess of US$60,000) and can be as high as 40%!
Other fees that are not immediately noticeable are foreign exchange spreads (estimated 0.20% - 0.60%) and bid-ask spreads. When you add up all the costs, it is a far cry from the cost of 0.03%.
Furthermore, these examples of additional cost are focused on U.S. securities only. If you were holding a proper investment portfolio, it should be well diversified geographically and practically — that means an additional 46 different markets with 46 different baskets of considerations!
This is precisely why our clients engage us to do this work, so that they can focus on the most important things in their life. Most people would hardly consider managing their portfolio and working on spreadsheets in the evenings after work or on the weekends as a fulfilling activity.
The peace of mind that comes with engaging an investment professional relieves you of the daily stress of managing your portfolios, allowing you to devote your time and energy to the more meaningful aspects of of life, such as spending time with family or pursuing hobbies.
Furthermore, professional firms like GYC have access to institutional tools that are often times not available even to high net-worth individuals. In our effort to continually deliver the best investment outcomes for our clients, driving returns through implementation is one of the key pillars of our investment process. Our relationships and networks with global market makers and liquidity providers allow us to seek better execution terms for buy and sell transactions than most or all individuals can do on their own. After all, every basis point that we keep for our clients, is a basis point of return that we deliver.
Most of us would trust an accomplished physician to manage our health. After all, physicians have specialised training, real-world experience and access to tools outside the reach of the general public. Most importantly, they took an oath to prioritize the patient’s health over their own interests.
In the way same, GYC adapts insights from financial science to each client’s individual situation. We look at clients’ financial health holistically and work with them to create a plan that aims to accomplish their unique goals. We are a trusted partner who can help when times are tough.
If you would like to know how you can invest with a peace of mind and increase your probability of success, click here to schedule an exploratory chat with us. (Complimentary 30-minute session).