Investing in low fees index funds is the only way to retire in peace. Morningstar found after years of research: low fees are “the most proven predictor of future fund returns.” In other words, the cheaper the costs, the better the fund is likely to perform and the more money you’re likely to make.
Passive funds are the cheapest because there is no active management. No fund manager is trying to outperform the market. In a recent article on FT, it is said that 86% of funds do not outperform the market. The average fee charged by active funds hovers around 2.5% comprising all the load charges and management fees. For index funds, it can go as low as 0.5%. I have a list of evidences here.
What kind of index funds should you choose? You can buy index funds from investment intermediaries. I suggest choosing a simple monthly plan where you can simply put money into an index fund and save with consistency.
There are a few types of products out there with local banks in Singapore. Choose those with minimal fees. I would avoid going through other platforms with higher fees.
If you are savvy, you can also buy ETFs (traded index funds) through brokers. But the list of ETFs on the Singapore market is not too exhaustive. So you can buy through U.S brokers only. I prefer Lightspeed and TD Ameritrade simply because of their low fees.
The principle behind investing is:
- Low fees or no fees
- Avoid intermediaries
- Avoid trading too much, just rebalance yearly. A 60% global equity index fund (I really like the plain old vanilla Vanguard fund) and a 40% bond fund will be sufficient.