This article was contributed to us by AIA Singapore.
In your daily lives, you may be coping with paying off your bills and managing your living expenses each month. By the end of every month, you may find yourself in need of your salary to keep up with your day-to-day living expenditure.
Thus, the idea of setting aside money each month to invest may be a distant afterthought. However, it’s also a common misconception that you need to be rich or have a lot of savings before you can start investing.
This isn’t true, especially with the diverse options available when it comes to investing today.
Start With Saving Up First
The first goal you need to work towards is spending less than you earn each month. By doing this, you will create a saving buffer to take care of emergency expenses.
Soon, you will realise that just saving alone will not be enough. In order to grow your savings at a rate that’s faster than the inflation rate, you need to invest.
Once you build a large enough emergency fund, you can start thinking about investing your excess savings.
How To Begin Investing With Just A Little Money?
Again, you don’t have to have a lot of money to start investing. By regularly contributing a small sum of money towards investing each month, you can start building a tidy nest egg for yourself.
This strategy is commonly termed as Dollar Cost Averaging (DCA). By embarking on a DCA investment strategy, you benefit from:
#1 Starting With A Small Amount
While having a large sum of savings to plough into the markets may be an ideal scenario, the reality is that not everyone starts off rich or with a fortune to invest.
Even if you had a large lump sum of money to invest, doing so via a DCA strategy can help you sleep better at night. By investing at regular intervals, you are limiting the risk of investing at the wrong time, simply due to bad luck.
The DCA strategy works best when you regularly put investments, regardless of how small, into the market to help you achieve the best possible outcome in the long-term. By putting away a smaller sum each month, you may also find it easier and less of a pinch to divert the amount from your monthly salary.
#2 Avoiding Market Timing
Markets can be notoriously hard to predict. Being a relatively new investor, you should assume that you cannot make savvier investment decisions than investment professionals. There are also countless research findings that show even the experts fail in being able to time the markets accurately.
Utilising a DCA strategy encourages you to invest a fixed amount of money each month, regardless of whether markets go up or down.
The result will be that you bought more investment units when prices are low, and less investment units when prices are higher. This effectively allowed you to invest at the “average” price, and enable you to earn the market return.
#3 Taking A Disciplined Approach
By investing each month, whether the markets were on a bull or bear charge, you substitute emotions for consistency. This helps you take a more disciplined approach towards investing.
Cons Of Dollar Cost Averaging
Every strategy has its pros and cons. Looking at the positives, you may think that applying the DCA strategy is a sure-win strategy. While it increases your chances, especially over a long time horizon, you have to note that every investment carries some form of risk.
One disadvantage of the DCA strategy is that if you are able to identify the right investments or investment themes, getting in as early as possible with as much of your money as possible can help you achieve better outcomes.
If you have a large sum of money, your spending power may diminish while you apply the DCA strategy of making only periodic investments into the market, and keeping the bulk of your funds outside of any investments.
Just like with every other financial decision, you need to assess your financial situation and make the best decision for yourself.
Where To Start Investing Your Money Via Dollar Cost Averaging?
One way you can start employing the DCA strategy is by investing in a Regular Shares Savings (RSS) plan. An RSS plan allows you to make small monthly contributions into eligible stocks and exchange-traded funds (ETFs) listed on the Singapore Exchange (SGX) or other global markets.
You can also seek to invest with a platform provider, commonly termed robo-advisors. These digital financial advisers help you allocate your funds to broadly diversified investments in Singapore as well as in global markets.
Another option is to make your money work for you by ploughing it into a savings plan, such as AIA Smart Wealth Builder. You can tailor your premium payment amount as well as how long you intend to continue paying the premium – single premium, 5 years, 10 years, 15 years or 20 years.
While you are applying a form of DCA into the policy in the long-term, you also enjoy 100% capital guarantee from the 15th year no matter how the market performs.
The policy also gives you the flexibility to withdraw money along the way, especially when key milestones occur such as paying for your child’s tertiary education as well as when you hit retirement.
Going one step further, you can also utilise this policy to leave behind a legacy for your loved ones, letting them continue to compound its returns even after you pass on.
Take Care Of Your Health As You Take Care Of Your Wealth
Accumulating a nest egg is an important consideration. However, you should not neglect your health in the pursuit of money.
Similar to putting away small sums of money each month to strengthen your nest egg in the long term. Having healthy habits and making positive lifestyle changes over the long-term will ensure you remain in the pink of health in years to come.
AIA Vitality, our comprehensive wellness programme, encourages you to make healthier decisions by taking a personalised approach to help you focus on your individual health journey.
To help you understand yourself better, there are various health assessments you can take to gauge your fitness, nutrition, sleep, mental well-being and Vitality age. To keep you on track, there are numerous rewards, including discounts for insurance premiums, entertainment and travel activities, gym membership, fitness devices, and health and nutritional screenings.
When you think about it, your health is your true wealth – with it, you can choose to continue working to build your nest egg to achieve a more comfortable retirement.