Young&Savvy

Don't fritter away your hongbao money

Invest it in stocks or ETFs, and you will reap sweet rewards in the long run

Ah, it's that time again when the Chinese New Year begins. The heady scent of mum's freshly baked and much-loved butter cookies starts wafting through the air, malls blast impossibly jarring festive songs and, most importantly, I get to pocket hongbao.

I am grateful for the Chinese tradition of parents and older relatives handing out red packets to children, but my married cousins and friends might say otherwise.

Over the years, visiting has been whittled down to two main venues - one for my mum's side and one for my dad's. It's just easier for everyone to congregate in one place.

That also means more hongbao are collected in the shortest amount of time, which leaves me free to catch up on quality sleep, sorry, I mean family time.

I'm not one to nitpick about how much comes in a hongbao. As my third aunt always says, getting a hongbao is to get "lai see", which to the Cantonese means receiving good luck for the whole year .


ST ILLUSTRATION: ADAM LEE

Not only do I welcome tons of luck for the year, I really enjoy hoarding the cash. There's just something about the look, feel and scent of a crisp note, don't you think?

But sadly, all those beautiful, fresh notes are soon returned to the bank. Voluntarily, may I add.

Yes, I save my hongbao money every single year.

Before I got my first ATM card at age 12 - which gave me absolute power over my finances, something I absolutely relished - my parents deposited the money collected into my bank account each year.

As far as it goes, I'm merely preserving a good habit they started and I think everyone should follow in my footsteps.

It will help if, like me, you've never felt the urge to spend those precious hongbao funds.

I admit I have been tempted once or twice in recent years, especially when I had to get through a financially taxing month after overspending on a trip abroad or was lusting after a luxury bag.

But I'm happy to report that I did not touch my hongbao money and I've since come to realise the follies of extravagant behaviour, I promise.

Over the years, I've learnt that the hongbao money sitting in the savings account was earning a mere pittance. So, as a teenager, I started to put my small hongbao fund into monthly savings schemes and topped that up with savings from my allowance and extra pocket money that came my way.

Put away at least $100 or so a month and - depending on the tenure of the scheme, usually two or three years - you would get a higher interest rate than what the regular savings account offered.

Last year, the annual average interest rate for a savings account was 0.14 per cent. That figure almost gives me the chills.

I remember squirrelling away so much that when my bank account first hit five figures while I was in my late teens, I was filled with glee and would drop hints to my mum about feeling "rich".

Keeping in line with the Asian culture of being modest about your wealth, I never told her exactly how much I'd saved, but my bemused mother would remark: "You must be richer than me."

She could probably see the dollar signs in my eyes, while I heard "ka-ching!" each time I opened the bank book.

When I started work, a bank officer suggested moving my money from a regular monthly savings scheme to an endowment fund - which I did without doing thorough research. That's a decision that fills me with some regret and bitterness, but it's a story for another day.

After speaking to so many investors over the years, I wish I had made my hongbao money work harder for me, either through investing in stocks or exchange-traded funds (ETFs) or even six- or 12-month fixed deposits.

I'll use OCBC Bank shares as an example. After all, the local banks are blue-chip names famed for their stability.

With my limited funds in 2005, I would have realistically been able to afford one lot or 1,000 shares of OCBC. At the start of that year, the stock was $5.47.

At the end of last year, the price was $8.85 - an increase of about 60 per cent over 10 years.

Or I could have chosen to sell at about $10, a price the stock hit in 2011, 2013 and April last year, and I'd have almost doubled my investment. Don't forget banks also offer dividends.

With the market volatility these days, you might find it hard to invest in a stock and hold on to it for long periods of time.

Value investors I know carry out active trading when the time is right, but the underlying message is the same: Make your money work hard for you.

If putting your money into one stock is daunting, and I'd understand why, ETFs would be another suitable option.

Take the SPDR Straits Times Index (STI) ETF, which tracks the STI. In the past 10 years with dividends included, it would have generated an average return of 5.2 per cent every year.

Let's start small: If I had invested $1,000 in that ETF in 2005, I would be sitting on about $1,660 now.

But really, if I had invested $10,000 then, that would have grown to $16,602. Am I hating myself now? Yes.

I prefer ETFs over traditional unit trusts because of lower costs. The SPDR STI ETF's expense ratio is 0.3 per cent, while unit trusts carry relatively high fees and charges.

These costs can go up to as high as 10 per cent of the total investment and are also recurring costs that eat into your investment.

Experts have told me United States ETFs can be cheaper than Singapore-listed ETFs, and they also offer greater variety.

So once you've finished counting your hongbao haul while you scarf down those pineapple tarts and bak kwa this year, save it all and start investing now. I'm sure you'll reap sweeter rewards in the long run.

As legendary investor Warren Buffett once said: "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for 10 years."

After speaking to so many investors over the years, I wish I'd made my hongbao funds work harder for me, either through investing in stocks or exchange-traded funds or even six- or 12-month fixed deposits.

A version of this article appeared in the print edition of The Sunday Times on February 07, 2016, with the headline 'Don't fritter away your hongbao money'. Print Edition | Subscribe