Feature Articles: Investment - OCBC Wealth Management

Monthly investments with potentially higher returns

The OCBC Monthly Investment Plan offers an attractive investment opportunity through regular investment intervals and amounts in one of three unit trusts of choice. It enables you to take advantage of Dollar Cost Averaging, allowing you to start early with a smaller amount so as to let your funds compound for longer.

This plan boasts another important feature - the removal of front-end fees and charges. In other words, every dollar of your money and savings will be fully invested from day one. However, "Class B" unit trust investments are subject to contingent deferred sales charge and distribution fee. For details, please refer to the prospectus.

Dollar Cost Averaging

Dollar Cost Averaging is the strategy of investing a fixed sum of money on a regular basis regardless of whether the price of the security you are buying is high or low.

This means that you ignore stock market conditions and automatically buy fewer units when the price is high and more units when the price is low. In this way, you as an investor will be able to reduce your average cost to a level which is below the average price, over a period of fluctuating prices.

A simple example

As the above table illustrates, the Average Cost to the investor is $1.22 per unit as opposed to the Average Fund Price of $1.27.

At an average price of 1.27, S$12,000 would be converted into 9448.82 units. However, with this method of Dollar Cost Averaging, the total number of units actually acquired is 9804.37.

Imagine if the investor had invested the full S$12,000 in September, the total number of units received would have been 7058.82. Of course, if the investor had chosen to invest the full S$12,000 in May, he would have received 13,333.33 units instead.

Herein lies the danger of trying to time the market. Very often, the casual market participant will find it difficult to make an accurate long or even short term prediction on the market's direction and may get the timing wrong if he were to invest all at once.

Benefits of Dollar Cost Averaging

Dollar Cost Averaging eliminates the risk or need to time the market as the investor automatically accumulates more units when markets are low and less units when markets are high.

This means of investing also helps to smooth out market volatility. Over a period of fluctuating prices, your average cost will actually be lower than the average price of the security you invested in as you benefit from falls in the market.

Furthermore, when investing in unit trusts, one should typically adopt a medium to long term time horizon. The Monthly Investment Plan helps encourage a longer-term perspective, allowing your investments to appreciate and compound over time.

By investing monthly, you will not need a large lump sum amount up front. Rather, you can invest a smaller amount each time, making it easier to set aside a portion of your savings every month and start early.

The power of compounding

The saying that time is money is perhaps most fitting when trying to illustrate the power of compounding. Starting to save and invest early, even if the amounts are small, can go a long way in helping you to accumulate a significant amount in later years.

Consider the scenario of an individual who invested S$500 a month for a 10 year period from 30 years of age to 40. Assuming an investment return of 5 per cent compounded monthly, by the time he reaches 40, he would have saved S$77,640.

If instead this person had invested the same gross amount over a shorter duration; that is to say S$1,000 a month for 5 years from 35 to 40 years of age, his total savings would only be S$68,290.

It can be seen from this example that how much you can accumulate in the future depends on how early you start saving and investing. This, in essence, is the power of compounding.

OCBC Monthly Investment Plan

The OCBC Monthly Investment Plan enables you to get started with as little as S$200 monthly, without any initial subscription. Unlike a conventional lump sum investment where a 5% front-end fee is charged, this plan entails zero upfront charges and all your money is put to work from day one of your investment.

The OCBC Monthly Investment Plan offers you a choice of 3 portfolios managed by AllianceBernstein (“AB”), formerly known as Alliance Capital Management:

Global Wealth Strategies

Because no single investment strategy is right for everyone, AllianceBernstein has created three different Global Wealth Strategies Portfolios: The Global Conservative Portfolio, Global Balanced Portfolio and Global Equity Blend Portfolio.

The portfolios correspond to different points on the efficient frontier curve. However, they share a common strategy: They combine low-correlation asset classes-such as stocks and bonds, or growth and value equities-in a common portfolio that is systematically rebalanced.

Their 4-Step Strategy

Step 1: Combine Low-Correlation Asset Classes
Step 2: Blend Growth and Value Styles
Step 3: Rebalance with Discipline
Step 4: Use Research to Select Securities

How Do These Funds Charge?

The 3 portfolios under the OCBC Monthly Investment Plan charge back-end fees upon redemption, as opposed to charging a front end fee upon subscription.

The back end fee is calculated on the lower of purchase consideration or present NAV. Back-end fee will reduce over time, so the longer you stay within the fund, the lesser the back end fee. There will be no redemption fee after 3 years for Global Conservative and 4 years for Global Balanced and Global Equity Blend.

Important Information

Alliance Capital (Luxembourg) S.A., which will be renamed AllianceBernstein (Luxembourg) S.A. effective 31 July 2006, is the management company of the Global Wealth Strategies Portfolios.

All applications for units in a unit trust ("Fund") must be made on application forms accompanying the prospectus. A copy of the prospectus can be obtained from the fund manager of the Fund, or any of its approved distributors. Investors should read the prospectus for details on the Fund before deciding whether to subscribe for or purchase units in the Fund. All unit trusts and investment products, except for funds guaranteed by OCBC Bank, are not obligations of, deposits in, or guaranteed by, OCBC Bank or any of its affiliates. An investment in unit trusts, and/or other investment products is subject to investment risks, including the possible loss of the principal amount invested. The value of units in the Fund and the income accruing to the units, if any, may fall or rise. Investors may wish to seek advice from a financial adviser before purchasing units of the Fund. In the event that an investor chooses not to seek advice from a financial adviser, he should consider whether the Fund is suitable for him.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

Past performance figures as well as any projection or forecast made herein are not necessarily indicative of future or likely performance of the Fund.

Investors should note that there are necessarily limitations and difficulties in using any graph, chart, formula or other device to determine whether or not, or if so, when to, make an investment in the Fund. Investors should also note that there are necessarily limitations whenever performance is stated or comparison is made to another collective investment scheme, index or form of investment and that there are also limitations and difficulties in using any graph, chart, formula or other device in this report to determine whether or not, or if so, when to, make an investment in the Fund.

OCBC Bank, its related companies, their respective directors and/or employees (collectively "Related Persons") may have positions in, and may effect transactions in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Persons may also perform or seek to perform broking and other financial services for the product providers.