A Poorman’s Foreign Currency Deposit – Unit Trusts?
Recently I’ve decided to try saving a part of my money in USD for that eventual trip to US (and probably other countries as well) and also because the exchange rate is pretty good (compared to 2008/2009), but apparently, there aren’t really good offerings from the local banks here – they require a rather large sum of money up front to open an account, the interest rate is really low, and also there are account and fall-below fees as well!
Since a bank deposit is out of the question, I turned my attention to the stock market.To my dismay, there aren’t many stocks that I can invest in on the SGX. Added to that, the price volatility scares me a little – after all, I’m supposed to save, not invest! Furthermore, there aren’t many USD-denominated stocks not to mention ETFs, and they only give an annual or quarterly dividends. ADRs were considered, but with the risk and hassle involved with securities and depositories (that’s why it’s called a Depository Reciept), it wasn’t worth looking at as well – even more so, what little dividends can be made off it. What I needed was something that could give a monthly dividend, so that it could simulate an interest paid on having your money placed in a bank deposit.
Eventually, I came up with the idea to “save” my money in a Unit Trust. Granted, it may be an investment, but as a believer of equity, Unit Trusts can never match the capital appreciation, nor the dividend yield of stocks on the market. Furthermore, the various fees which the fund managers and the institutions or platforms which you have an account with make this an even less appetizing meal for me. What it does provides however, is “managed risk appetite”. Depending on the asset and investment strategy of the trust, the movement in prices aren’t as volatile as stocks. It isn’t as liquid as a deposit, and it has its own baggage of fees and costs, but you don’t have to cough up a large amount of money too.
There are many types of Unit Trusts, but I’ve chosen to put my money in a bond fund. Alternatively, a money market fund would suffice as well. The key is to check if the fund is currency hedged or not – if the trust is not hedged, then you might suffer financial losses due to the movement of currency exchange rates. Should you have a better risk appetite, you can try placing your money in a balanced, global equity or even specialized fund, but as always, caveat emptor.
Finally, the question as to which bond fund I chose? Well, I simply picked one denominated in USD and hedged. As a bonus, it also pays out dividends monthly, which I reinvest into the fund. Simple, easy to manage and not so worrying!