Is it really worth it to RSP into the VT ETF with FSMOne?
FSMOne has been touted as one of the cheapest ways to RSP into ETF products. I’ve even written my review on the brokerage a few weeks back so if you’re interested you can read it here.
Although it is cheaper to use its RSP product for SGX ETFs as compared to other RSP providers, what about its international offerings? After months of usage, I’ve noticed there are hidden fees within this product that might eat into your returns.
In this post, I’ll deep-dive and do my calculations to decide if it’s still worth using FSMOne’s RSP product for my DCA investments. We will mainly focus on the S&P 500 and US ETF options. There aren’t any known hidden fees involved with their SGX and HK ETF products.
What are the hidden fees
To purchase US ETFs such as IVV or VT, it will cost US$1 per transaction. We’ve got to agree that the price for buying in is really cheap. However, it’s the rest of the pricing that might be a cause of concern for many passive investors.
The first big number that you’ll see is the US$50 that’s charged for voluntary corporate action. For an ETF, this is actually very unlikely to happen. Rights Issues and general offers generally only happen for single stocks. If the underlying company that the ETF tracks has a corporate action, the fund will take care of it and that will not impact you as the ETF investor. Therefore, we can largely ignore this pricing.
Lets analyse the dividend handling fees and how it’ll impact our earnings.
To begin, we have to first know that all US-domiciled stocks and ETFs have a 30% tax withholding fee for Singaporeans. So in the case of VT which gives out a 1.71% dividend yield, it’s effectively 1.19% for Singaporean investors.
On top of that, FSMOne also charges a minimum fee of US$2.50 for every dividend handling. As most US stocks distribute dividends every quarter, we are effectively charged an additional US$10 every year from our dividends. Note that this US$2.50 is deducted after the tax withholding. After tax withholding, if your dividend is less than US$2.50, then you won’t get any dividends distributed to your account.
Working backwards, for investors of VT using a stock price of $77.46 and yield of 1.71%, assuming the distribution is equal throughout the year, you’ll need to have $835.08 invested in VT to even beginning receiving any dividends. For any investments less than $835, you’re effectively paying an additional 1.2% in fees for your investments. I think that’s a really expensively fee.
Of course as your holdings in VT increases, this US$2.50 fee becomes less significant. To reach the minimum US$2.50, you’ll need to have invested US$20885.5. At that point, this cost would have been an insignificant 0.04%.
After all the numbers crunching, I’ve come to the conclusion that it will only make sense to invest with FSMOne’s RSP product if my portfolio is large or the dividends I’m receiving is high enough. At an additional 1.2% fees, this would have been prohibitively expensive to me to use.
Even though passive investing is supposed to be hassle-free, sometimes we should do some calculations to ensure that we are not overpaying for our investments. Over the long term, these seemingly small fees can eat into our earnings significantly.