Fundsupermart uses three basic selection criteria for its recommended funds list. Firstly, it recommends only funds with a track record of at least three years. Secondly, it favours funds with lower expense ratios - what investors pay to the fund manager on an annual basis.
For bond funds, low expense ratios could range from 0.25 to 0.75 per cent, depending on the nature of the fund. For example, emerging market funds and high yield bond funds typically have higher expense ratios.
For equity funds, which are actively managed, a rule of thumb would be an expense ratio of 2 per cent and below.
Finally, Fundsupermart measures the fund's resiliency during a market slump. Some funds are more resilient than others during times of volatility.
To identify resilient funds, it scores them by looking at their performances during different time periods. For example, if they held up well in comparison to their competitors during periods such as the Asian financial crisis, the technology bubble or the current global financial crisis, they will be scored higher.
According to Ms Mah, two funds - First State Dividend Advantage and Aberdeen Pacific Equity - are relatively resilient in contrast to their peers and the expense ratio is below 2 per cent in the last reported annual reports.
9 Contribute to the Supplementary Retirement Scheme
The main purpose of the SRS account is to provide disciplined savings to accumulate funds for your golden years. It also helps cut your personal income tax, as you can claim tax relief on your SRS contributions, up to the maximum annual sum of $11,475.
The contributions may be used to buy various approved investment instruments and the returns are accumulated tax-free. You can open an SRS account at branches of DBS, OCBC Bank and United Overseas Bank.
However, do note that withdrawals from your SRS account before the retirement age of 62 is subject to tax and incur a penalty of 5 per cent.
After the retirement age, withdrawals from SRS are still subject to personal income tax, but one can choose to spread the withdrawals over 10 years, and only 50 per cent of the withdrawals will be taxable.
This means that a retiree who has no other income at the age of 62 will be paying zero or very low tax when he withdraws his SRS funds as he will fall under a low tax bracket. This reduces tax payable since it is a deferred tax scheme. At 50 per cent tax savings, SRS funds that are withdrawn over 10 years will incur zero tax if the chargeable amount for tax computation is less than $20,000.
It is too late to contribute to SRS to enjoy the tax relief on last year's income but you have the whole year ahead of you to do so for this year's income.
10 Pick robust stocks
In current market conditions, it is essential to understand one's investment timeframe and objectives.
Equally important is the selection of stocks that will meet one's investment goals, says Ms Carmen Lee, head of OCBC Investment Research.
As market conditions are still fairly volatile, risks will continue to prevail. For investors with a lower risk appetite, it is advisable to invest in blue-chip companies with established business track records and sustainable business models. This is vital in recessionary market conditions, as it means that the organisation will have the right business models to ride out difficult times.
Examples of blue chips are SingTel, M1, StarHub, SembCorp Marine, Singapore Press Holdings (SPH) and Straits Asia Resources. Other stock picks by Ms Lee include Ezra, Midas, Tat Hong, Pacific Andes and Sino-Environment.
Companies that have been through a few business cycles are also better equipped to understand and deal with the challenges in a downturn. A good case to bear in mind is the Internet bubble in 2000-2001. Several high-profile Internet companies that mushroomed during that period are no longer in existence.
Another factor to watch out for is the management of firms, since they are the drivers and executors of the business, says DMG & Partners head of research Terence Wong.
It is important for the company to have a strong balance sheet and cash flows. Valuations tell you whether the stock is worth investing in. The company may have the best fundamentals in the market, but if it is overpriced, it is not worth investing in. Look at ratios like price-to-earnings or price-to-book and compare these guides to share values with industry averages.
Looking ahead, Mr Wong believes markets are likely to get worse before recovering, as the reality of job losses, pay cuts and less-than-stellar economic figures hit home.
'In the near term, it is best to invest in some defensive plays such as SPH, StarHub and ST Engineering, while investors with a longer-term horizon can look at economic bellwethers, as they will be the first to pick up,' he says.
'Don't be surprised if the stock market decouples from the real economy in 2009 and shoots up towards the later part of the year. The Straits Times Index made powerful runs in 1998 and 2003, two of the worst years for the Singapore economy over the past decade.'
This article was first published in The Straits Times on January 04, 2009.
