What Should Be The Appropriate Returns For My Siblings?

With a day to go before the end of 2014, it’s also about time to renew my “contract” with my younger siblings for another year. If you’re wondering what I am talking about, let me explain. My siblings received a small inheritance a few years back and I was tasked with helping to manage a significant portion of it, about $20,000 each for the both of them. And these funds are made less liquid for them since I have also imposed some conditions regarding the withdrawal of these funds.

This renewal was supposed to be a simple annual affair but I started having second thoughts on the agreement after reading this post written by La Papillion. In his post, he was sharing his experience after issuring his own “bond” to his parents. I commented on it and also revealed that I was offering my siblings a simple and straight return of 5% a year. In the ensuing discussion, I couldn’t help but get the feeling that I was being too “generous’.

Which is pretty amazing since when the “contract” was first drawn, my initial thoughts were that I was probably short-changing them. That’s mainly based on the assumption that the market earns a return of 10% a year on average and that over time, 70% of the funds should be invested in stocks for most periods. On the other hand, even I have to admit that I would be tempted if there’s an opportunity to invest in a relatively liquid instrument with a guaranteed 5% return.

So instead of forcing this “contract” down their throats for another year (oops), I thought it might be better for me to offer them various structures to determine their returns. So here’s some of the possible options I have in mind and my assessment of them are based on my dual role of fund manager and elderly guardian of their money. (Talk about conflict of interest…)


1. A Flat 5% Return


Simple and appears reasonably fair –  a 5% fixed return for an instrument that is definitely more liquid than our CPF funds is definitely appealing even to myself. There wouldn’t be a need to report the returns of my own portfolio to them too.

Unlimited upside for me –  If Ithe market/ do well, I get to keep all the additional returns (above 5%) for myself


Unlimited downside for me – In a weak market or if I pick the wrong stocks, it’s a double whammy. Besides suffering losses myself, I would have to cough out an additional 5% for their investments.

No interest in what I am doing – I do hope that one day, they will be interested in creating their own financial roadmap and be capable of managing their own money. However, there is no incentive for them to know or learn further about how I invest since they are not involved in any downside or upside.

2. Warren Buffett’s Partnership Structure

“I got half the upside above a four percent threshold and I took a quarter of the downside myself. So if I broke even, I lost money. And my obligation to pay back losses was not limited to my capital. It was unlimited.” – Warren Buffett


Limits downside for me – In the event of a market crash and the portfolio sinks by 40%, I would only be responsible for 10% of the loss.

They have a chance to participate in potential upside – If I am able to achieve 9% annual returns on average, I will get a good 2% as fees and they get a not-bad return of 7%.


Involves complicated formulae to calculate return – I haven’t really been that disciplined in calculating my portfolio returns. Additional efforts would have to be made to record transactions to calculate an XIRR or a time-weighted return, Not that bad since regular passive income updates on this blog would help me to obtain a good estimate.

Prospect of negative returns for siblings – That’s the trade-off if there is no guarantee from me

3. Same Returns as “My Passive Income” minus a small fee


Not seen as taking advantage of siblings – Assuming the fee is a small 0.5%/year (~$100), I am not taking much away from their returns.

Feel the full effects of the market – Good when the bulls are around and bad when the bears prevail.


I despise such a structure – It’s a matter of principle. It just doesn’t sound right that I will be renumerated regardless of my performance. But then, that’s the structure of most investment funds. =p


Would appreciate any views/comments since it’s likely to be more objective? My siblings will be reading this article and all of us will appreciate any advice. =)

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12 thoughts on “What Should Be The Appropriate Returns For My Siblings?

  1. Charles

    Option 1 assuming you are talking about a one year fixed deposit equivalent, this is 4% or more above the market level. Granted your creditworthiness may not be as good as the bank which is SDIC insured for the sums we are talking about.

    Option 2 presents a unique option that’s not available in the market but if compared to the “risk-free” rate of 5% presented in option 1, this option only makes sense if you can demonstrate a consistent ability to beat the market. If not then your siblings can generate greater returns by allocating a portion of their portfolio to option 1 and the remainder in STI index and probably achieve better returns per unit of risk.

    Option 3 is like a traditional unit trust with fees higher than ETFs. You would have to demonstrate your performance is consistently better than a diversified ETF otherwise it makes more sense for your siblings to invest in that. Again your siblings are better off allocating their inheritance to option 1 (since its well above market levels) and investing their own capital in STI ETF to achieve an optimal risk vs return portfolio structure.

    1. My 15 HWW Post author

      Hi Charles,

      Thanks for your detailed analysis. Especially liked the part where you mentioned about my creditworthiness as compared to banks. LOL!

      Seems like your conclusion is that my siblings are better off allocating a portion in option 1 and then investing the rest in STI ETF.

      Sounds reasonable and in fact, that’s actually happening since they are subscribing to the POSB Blue Chips plan, although the latter is a small proportion of their entire assets since they just started with the investment plan.

    1. My 15 HWW Post author

      Hi CW8888,

      There’s a point there, especially in this low interest rate environment.

    1. My 15 HWW Post author

      Hi SMOL,


      Judging by responses so far, guess the love comes from the guaranteed 5% returns that I have providing for the past 2 years? LOL!

  2. Drizzt

    you are probably a great investor who manages risk well. i would not think of doing something so risky when i couldnt take care of my own money.

    1. My 15 HWW Post author

      Hi Drizzt,

      “Great Investor”? With only about 3 years of records, I am of the view that both words do not apply to me, at least not yet. =p

      It’s probably not so risky for me since their total investments are not too large, about $40k. The difference between a more conservative 3% return vs the 5% I provide on this amount is about $800 per year, which isn’t too demanding.

      I think you’re way too humble. I have been following your blog for a long time and if you’re considered one who can’t take care of his own money, then not many can say they are doing a good job. You have a strong and healthy portfolio too!

  3. B

    Hi Hww

    Promising a 5% return is no easy feat. Unless you are doing it out of getting your siblings interested in investing, I dont think it is a feasible plan for yourself. Previously in the past I used to take on some balance transfer with a effective interest rate charges of 2% per annum. So anything above that is my arbitrage return on investment. Its not a lot but 2% is easier to hit than 5%.

    1. My 15 HWW Post author

      Hi B,

      I have to admit it’s a matter of time before I see a year when I suffer a loss, not to mention make 5%. Therefore, it’s unlikely to be offered to anyone other than close family members.

      Mrs 15HWW prefers giving them the dividend return (3%-4%) that we are getting from the portfolio which is also likely to be more conservative.

  4. YP

    Hello there,
    Intrigued by this idea. But I think I was a little wary because it involved my in-laws, rather than my own siblings My mother-in-law handed us $20k a few years ago to manage. She just wanted me to place it in my hands. She says she will take whatever interest I can generate (which I didn’t guarantee) but the principal amount should be kept with us. She hinted that if she passes away, she wants us to keep it. I returned it to her two years back because I just felt it was not quite right, cos I don’t know what the other siblings-in-law might think. But now with your blog post, I am beginning to think if it’s a good idea to re-think on this. Thanks for planting the seed of an idea. I think if the relationship is a strong bonded one, I would go for X% guarantee (frankly 5% is pretty high for a guaranteed rate!) Perhaps you could benchmark it to a certain rate, you know, like home loan rates SIBOR + X%. So, you could benchmark it to say, (BEST FD rate in market) + X%. This way, it moves with market and there is no feeling that it’s a downgrade of upgrade of return, just moving with the market. And please, no matter how good the relationship, have conditions down in writing and signed by everyone. I think it gives peace of mind for everyone. My 2 cents’ worth.

    1. My 15 HWW Post author

      Hi YP,

      If I were in your shoes, I might have baulked at the proposal too. My relationship with my siblings a little different. No red eye syndrome from anyone. But if you look at it from another angle, it might that your in-laws feel that your are the best managers of money! That’s a strong endorsement.

      And thanks for putting ideas into my head. Maybe it can be 3% + 1/4 market returns or Best FD rate + 2%. Otherwise, 5% can be quite shiong in a year like this. :p