It felt good being a first time investor;
after reading The Bedokian Portfolio or some other investment books or
material, you will feel the urge to jump straight into the action. You may
quickly want to open up a brokerage and/or regular savings plan account, start
to look for securities to invest in, and voila,
you have started an investment portfolio.
Then as the months or years gone by,
suddenly you have discovered something; your Company A and REIT Z shares are
straddled between your Central Depository (CDP) and your regular savings plan
accounts. Your Corporate Bond Q is split between a custodian brokerage and a
bond fund brokerage account. If you want to sell say, Company A shares, you may
have to incur twice the transaction costs because they are placed in different
platforms. Ditto for buying with the added headache of choosing which platform
to buy.
Just as you had taken the time to learn
about investing, you should also take the time to do some research into how to
go about it. Administrative matters, though they are trivial, must be aligned
with your overall investment strategy. They will sometimes give you the
greatest headache if things are not falling into place.
Brokerages and Trading Platforms
A few fellow investors and traders I spoke
to placed commission charges as the top priority. While this is correct as such
transaction costs erode our returns, we have to consider other factors in
place, such as where the securities are being kept (CDP or custodian), further
charges like custodial and dividend handling fees, and the value added
features, e.g., reports, videos, etc. in the trading platforms.
For myself, I use CDP-linked brokerages for
local individual securities (equities, REITs and bonds), and a custodian
brokerage for foreign securities and exchange-traded funds (both local and
foreign). The main reason why my securities are with CDP is to have more
control when corporate actions occur, like rights issue, attendance of annual
general meetings, etc.
Regular Savings Plan
Firstly I would like to declare that I do
not have any regular savings plan (RSP) in place. I had mentioned in my ebook
that it is preferred to have your holdings in a good-to-look number to
facilitate ease of transaction during rebalancing1. Since RSP uses
dollar-cost averaging in the form of a fixed dollar amount per month, the
chance of having odd-lots (number of shares not in multiples of 100s for
locally-listed shares) is very high.
That being said, I am not against RSPs. In
fact, I have thought of a way to incorporate RSPs into your regular Bedokian
Portfolio. Remember the core-satellite approach?2 For RSPs, it is
better to use them to purchase ETFs for your core, since the core would be
rarely touched during rebalancing. You could also view your holdings in the RSP
as the “inner core”, with ETFs bought using usual brokerage means as the “outer
core”, so in case that the rebalancing reaches the core, the outer ones would
be transacted first.
One More Thing
The last part of the admin of your
portfolio management would be the securities themselves. If you have bought
Company A shares from a brokerage using CDP as custodian, then any further
purchase of the shares must be bought using this same channel. This is to
prevent additional transaction costs incurred as stated above, and also an
accidental short sell. The latter could happen if you cannot recall the quantum
of shares allocated between the types of custodian and unintentionally
oversold.
As for ETFs, following the RSP section
recommendation, you could use RSP to buy in regularly for the inner core, and
select one form of custodial arrangement for the outer core.
1 –
The Bedokian Portfolio, p77-79
2 –
ibid, p122-123
Further
references
The
Bedokian Portfolio, Chapter 2 – The Workings
