4 years ago, when Mrs 15HWW wasn’t Mrs 15HWW yet, I cajoled her to sign up for the Philip Capital ShareBuilder Plan. I was still in school but she had already started working for about 2 years. Since she was saving a really big proportion of her salary then, I thought that allocating $600 a month to this plan was a better allocation of the money.
4 years on, with total injections of $28,200, we have finally sold the entire stake earlier this month for $30,785. A total return of about 9% and an annualised return of about 4.5%. To be honest, that isn’t really impressive and I would have to admit I would have expected more when I first started this.
But the poor returns wasn’t the main reason why we opted out of this plan. After all, 4 years is a relatively short time in the market. (I still can’t believe they referred to this 23 year old NSF guy as a veteran after investing for 5 years in yesterday’s Me & My Money feature on Straits Times.)
Here’s the reasons why:
Goal of semi-retirement
When both of us started out investing 4 years ago, we thought that we would only need the money when we were closer to 50 or even 55, giving us a time horizon of almost 30 years. Therefore it didn’t really matter to us that under this scheme, the dividends were automatically reinvested to buy more DBS and STI shares. In fact, that was helpful since it meant we would benefit more from compounding.
But now, our plan is to be able to semi-retire in less than a decade’s time. And since we intend to fund at least half of our expenses in semi-retirement through dividends, the Phillip Capital ShareBuilder plan probably isn’t the best tool for this purpose.
Less need for diversification
In late 2010, the amount of savings we had was really meagre compared to the size of our stock portfolio now. We probably would have used up most of our savings to purchase one lot of DBS share. It was difficult for us to achieve meaningful diversification if we were to purchase stocks directly.
And that’s where the Phillip Capital ShareBuilder plan came in as we could have both the exposure to 30 different stocks in the STI and an overweight on DBS bank by allocating $500 to purchase the STI ETF and $100 to DBS shares.
However, the need for diversification through this instrument has greatly resided as we have added many positions to our stock portfolio over the last 4 years. It already consists of almost 20 different businesses as of now and there are plans to increase it to 25.
Asset allocation and market timing
Previously, before I retired from my first job, we were saving close to an average of $4,000 to $5,000 a month. Therefore, channeling $600 to the Phillip Capital ShareBuilder Plan was actually in line with our asset allocation strategy.
However, based on income-expenditure analysis in the past couple of months, we are saving <$1,000 a month instead and allocating $600 to equities every month warrants a big proportion of our savings. And it didn’t help that our cash position was dwindling due to some big one-off expenditures in recent months.
Furthermore, as the US stock market climbed to record highs, we were not too comfortable with the amount of exposure we had in local equities. Selling this stake would immediately reduce this exposure by 15% and also increase our cash position by about 40%.
Relatively high expenses with the product
The annualised return of this product would have been closer to a more respectable 5% if not for the fact that there were plenty of odd lots that had to be sold in the secondary market. They commanded a price that was lower by almost 5% and reduced the profits made.
Nonetheless, the main drag was still the expenses incurred from the monthly transaction. In the initial months, besides the $6 handling fees, an admin fee of $2 was charged for delivering a hardcopy of the monthly statement. And that’s higher than 1%, which is pretty significant in my opinion.
If I want to be vested in the STI ETF, it would be cheaper for me to accumulate the amounts over 6 months and invest them in one shot.
Anyway, even though I have exited from the product, I would like to reiterate that I am definitely not discounting passive investment as a strategy. As mentioned, it is especially useful for beginners and both of my younger siblings are participating in the POSB Invest-Saver, which can be considered a similar product.
And even for the 15HWW household, there are plans for more passive investments. It’s likely that we might turn to index funds or ETFs to gain exposure to overseas markets like the US market.