Compare how four managed options end up after 20 years, using your own amounts and their real charges.
Wei Ling (an invented investor) could put the same money into any of four investments, and she wants to see what each one would cost her across 20 years. Your capstone asks you to do the same for your own money, because the whole course reduces to one table that lines up investment options next to each other.
Earlier modules explained, costed or tested every one of the four options. Now you decide using figures you have checked: your own amounts and each option's real charges, run over 20 years. The brief is to compare the 20-year outcome of four managed options. Each option gets three results: its ending value, its total cost over 20 years in dollars, and the amount by which it trails the cheapest option. When the numbers are done, you add a note on what each option gives you for its price.
Pick the options you are really choosing between, even if they differ from Wei Ling's. A set of four that covers the course's main routes is a unit trust sold by a bank, the same fund bought on a platform, a robo-advisor portfolio, and an index fund or ETF you buy yourself. Replace any route you would never consider with one you would, such as a second robo-advisor.
Wei Ling is weighing four choices. She can keep buying her fund at the bank, move to the clean class of that fund on a platform, use the robo portfolio Arjun preferred in module 4, or buy a world equity ETF every month through a brokerage account.
You need two charge figures for each option: the one-off charge on each purchase and the total yearly cost. Get both from the option's own documents and fee pages, as you did in modules 2 to 4. In those modules, lesson 2.4 supplied the charge sheet, lesson 3.4 the two-channel comparison and lesson 4.4 the robo comparison. Don't use articles or comparison websites for these figures, since they can be out of date or miss items.
For Wei Ling, the bank fund carries a 2% sales charge on every purchase and costs 1.75% a year. The platform has no sales charge, and its yearly cost of 1.40% is the clean class at 1.00% plus a platform fee of 0.4%. The robo portfolio also has no sales charge and costs 0.78% a year all in. Buying the ETF means paying a brokerage commission of 0.3% of each monthly purchase, with a yearly cost of 0.20%. The ETF has the lowest charges of the four, but the investor handles everything: choosing, buying each month, rebalancing and keeping records.
Every option must run on the same inputs: one starting sum, one monthly contribution and one return before costs, over 20 years, or 240 months. Wei Ling starts with S$10,000, adds S$300 a month and assumes 6% a year before costs. Each column therefore receives S$82,000 in total (S$10,000 + S$300 x 240).
The 6% keeps the comparison fair. It does not predict how any option will actually perform. Lesson 7.3, "Model one-off and yearly costs together", explains why it is an assumption and not a forecast. The spreadsheet and FV formula you apply to each option also come from lesson 7.3.
Before working on the options, calculate the no-cost line: the ending value if there were no charges at all. You measure every option against it, and in Wei Ling's case it comes to S$171,714.31.
You account for charges in two places. For a one-off charge, multiply each payment by (1 minus the charge), so a 2% charge becomes 0.98 and a 0.3% commission becomes 0.997. For a yearly cost, take it off the gross return and then divide by 12. Put together, the FV inputs are: rate = (gross return minus yearly cost)/12, periods = 240, payment = -(monthly amount x (1 minus one-off charge)), and present value = -(starting sum x (1 minus one-off charge)). Wei Ling's four formulas give these ending values:
Bank fund: =FV((6%-1.75%)/12, 240, -300*0.98, -10000*0.98), result S$133,809.15 Platform: =FV((6%-1.4%)/12, 240, -300, -10000), result S$142,822.09 Robo: =FV((6%-0.78%)/12, 240, -300, -10000), result S$154,833.21 ETF: =FV((6%-0.2%)/12, 240, -300*0.997, -10000*0.997), result S$166,683.16
An option's total cost is how far it ends below the no-cost line. It counts both the charges and the growth those charges would otherwise have earned. You get it by subtracting the option's ending value from the yardstick. Wei Ling's total costs are S$37,905.16 for the bank fund, S$28,892.22 for the platform, S$16,881.10 for the robo and S$5,031.15 for the ETF.
The option with the highest ending value is the cheapest. For Wei Ling that is the ETF, and the bank fund is the most expensive. The gap from the cheapest is the cheapest option's ending value minus another option's ending value. Against the ETF, the robo trails by S$11,849.95, the platform by S$23,861.07 and the bank fund by S$32,874.01.
Your finished comparison is one table with a few sentences under it. Give the table four columns, one for each option, and five rows: one-off charge, yearly cost, ending value, total cost, and gap from the cheapest. Below it, write a line for each option saying what you get for the price.
Wei Ling writes that the bank fund includes a relationship manager and yearly reviews, though the reviews have so far mostly suggested switches. The platform sells her the same fund for less but gives no advice. The robo decides her mix and rebalances it for her. The ETF costs least, but it only works if she keeps to a plan with nobody checking on her.
Her table priced each service over a period that fits her plans, and it left the choice to her. The bank and the platform hold the same fund, so the difference of about S$9,000 between them over 20 years is what the yearly review costs her. The difference of about S$11,850 between the robo and the ETF over 20 years is what she pays for automatic rebalancing. She still has two decisions to make: whether a yearly review is worth about S$9,000 over 20 years, and whether automatic rebalancing is worth about S$11,850.
Only the investor can judge whether a service is worth its price, so for your own options that judgement is yours. To price a service, find two options that differ mainly by that service and read off the dollar gap between their ending values.
In the activity below you build your own version, with your own options and amounts, and note which service differences you would pay for.
Build the comparison. Write down each option's total cost over 20 years in dollars, and note any service differences you would pay extra for.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).