Cost of investing in bond funds

[Samtenk]

A $500k aggregate investment in various bond funds (Alliance, Fidelity etc) held with a bank's private banking arm costs a flat fee of 3% ie $15,000 per annum in cash costs! This is over and above the buy/sell commissions on each purchase and redemption.

This is more than the average household expenditure per annum of a 5-room HDB household.

Does this make sense when one can build a similiar fixed income portfolio in (say) FundsSupermaket?


Samtenk

[bran]

how did you get 3%?

[NTL]

You mean there is an extra 3% per annum charged for private banking to handle the funds? If so, just don't join private banking!

And, a 5rm HDB average annual household expenses is $15,000 or $1,250/month? Where is this figure from? Seems kind of low to me...

[Samtenk]

I beg your pardon for the confusion. There were no fixed fees. The bank made its fees in a flat 0.5-1% whenever I bought or sold a fund or bond although they could also have shafted me in bid/offer spreads (yeah, ever the cynic, me)

On the annual household expenses - this probably works out to $3,000 pm for a condo dweller with modest expectations, like me.

Basically what I wanted to say is: in retirement I hope to use a $1.5mio portfolio of equity (all STI and mid-cap stocks) fixed income and other funds plus REITs to generate 4-5% per annum of mostly passive income.

Any existing or nearly-retirees with views, I'd be grateful to hear from them ?

[corydorus]

With 1.5mio, i will DIY into STI index, some bond in STI, some PFS, Telco and Local Banks mainly. Can generate good returns less fees.
More control and relatively good regular dividends too. Just 1% fees saving can make a large difference in return over 20 years. I can even use some percent of the funds to dabble in potential SMEs if good enough picking skills.

[NTL]

I dunno how banks work. But you are definitely confusing me. Your first post mentioned annual flat fees, your second post said otherwise. Your first post mentioned 3%, second post lowered to 0.5-1%.

If you are trying to generate an income of $3000/mth, or $36000/yr based on $1.5m, the yield needed is roughly slightly above 3%. Should be easily achievable, even with all the big cap stocks like keppel, Singtel, DBS, etc.

if you don't like to manage your own money, and prefer to buy funds, I am also sure that many are able to pay you that kind of yield. Talk to your banker, or financial planner, or simply walk into a Phillips Investment Centre.