Build Your Own Fixed Income Fund

It is very sad to read in the news people lost their life-time savings to the Lehman brother mini bonds. Those investors are not even greedy, what they asked for was only 5-8% return per annum, or even just enough if they can beat the fixed deposit rate.

And the 'professionals' convinced people that as an individual, they will never be able to have the time and knowledge to manage their own money. Money has to be turned to the 'professionals' so that the 'professionals' can have a high salary, fat bonuses, and at the same time, lose YOUR money.

Why don't people just ditch those scumbags and build their own fund? It is not difficult to build your own fixed income fund, and even less difficult to beat the fixed deposit rate, as some of the funds benchmarked against.

Let's say you have S$100,000 in capital to build your own fixed income fund, what you can do is:

1. Get a Fairprice Plus credit card issued by OCBC. It comes with a savings account that lets you do all your bankings through ATM or internet (no over the counter service though). The savings accounts offers 0.5% p. a. interest for accounts of less than S$50,000; 1% p. a. interest for account of S$50,000 and above. What is the fixed deposit rates now? Don't think it is more than 1%. See, you can easily beat the fund managers.

2. To diversify your risk, you should buy some Singapore government treasury bills. You can make such purchases at the banks. Just tell them you want to buy Singapore government treasury bills, nothing else. For sure they will try to convince you to buy something else that gives them higher commission. Treasury bills are short term instruments that varies from 3-6 months normally. The return is quite low, but at least your money is 'safe', as long as Singapore government does not go bankrupt.

3. You should have some substantial portion of your S$100,000 invested in 1 & 2. After that, you should look for something that will give you a bit higher returns. One option is to buy the preference shares from all the 3 big local banks.

OCBC offers 4.5% pa & 5.1% pa preference shares, UOB offers 5.05% pa preference shares, DBS offers 6% pa (up to 2011) preference shares. You can purchase those shares in the open market as like any other shares. However, you should be reminded that preference share prices will go up and go down in value, and when they go down, it can drop quite a lot. For example, OCBC 4.5% shares has gone down from around S$104.00/share to the current price of ~S$80.00 a share. You must be prepared to stomach the capital loss, and have the confidence that the local banks won't go bankrupt!

4. Then you may allocate about 5% of your total investment capital into some high yielding stocks.

With the above, you can easily construct your own fixed income fund, and easily beat the performance of many 'professional' fund managers. Some claim the fund under their management JUST dropped 20%, better than STI's performance. And the investment return of <1% performance by those so-called 'professionals' is really a joke.

Disclaimer: The above is my personal opinion only, no liabilities in whatsoever form are assumed or born by the auther. Invest on your own risk!