This article was written in collaboration with FSMOne. All views expressed are the independent opinion of DollarsAndSense.sg
Getting started with investing is arguably one of the hardest hurdles to overcome along your investment journey.
That’s because new investors are stepping into unfamiliar territory. With most of us naturally being risk-averse, stories of people losing a significant chunk of their savings in the financial markets are likely to weigh down on us, which may prevent us from wanting to get started investing, even though we know we should.
Not wanting to dip our toes into the investing world is like sitting on the edge of a swimming pool and refusing to get into the pool. If we want to learn how to swim, sooner or later, we have to get in. A similar approach can be applied to our investment journey.
Thankfully, nobody is asking us to jump straight into the deep end of the pool (nor should we). Rather, we can start learning how to swim at the shallow end, practise our strokes and gain confidence in our abilities over time, before proceeding to do laps at the deep end.
Likewise, for investing, it makes sense to start investing with a small, regular amount first. And this is where a Regular Savings Plan (RSP) can be a very effective tool.
What Is A Regular Savings Plan (RSP)?
As explained by FSMOne, a Regular Savings Plan (RSP) is a monthly subscription plan that enables you to invest a small fixed sum of money into a particular investment product on a regular basis (usually monthly).
RSPs were designed based on the investment concept of Dollar-Cost Averaging (DCA). The idea behind DCA is that when we invest a fixed sum of money each month, we buy more units when prices are cheaper and lesser units when prices are expensive. In the long-term, what we end up paying for is an average price for the assets that we are investing in.
The main advantage for DCA is that we are able to avoid trying to time the market. We don’t have to be worried about whether prices are low enough that we should get into the market now, or whether prices are too high and that we need to stay out of the market.
Timing the market is difficult even for professionals, let alone new investors. Through the use Regular Savings Plan (RSP), we can implement the concept of DCA and make market timing a non-factor.
Here’s a simple example of how RSP can help you, particularly in a volatile market.
|Month||Asset Price||Investment||No. Of Units Bought|
Units accumulated: 3,051.8
Value of Investments: $3,051.80
From the example above, you can see that despite prices being volatile, an investor would be able to get an average long-term price by investing a small sum of money each month, instead of timing the market and possibly investing a lump-sum amount when prices are high.
What You Can Invest In Using A Regular Savings Plan (RSP)?
A misconception that some investors have is that you can only invest in stocks via a Regular Savings Plan (RSP). This isn’t true. While you can indeed invest in stocks listed on the Singapore Exchange (SGX) through Regular Shares Savings (RSS) plan (which is a type of RSP), there are also other investment options that you can also consider.
For example, through the FSMOne Regular Savings Plan (RSP), investors can invest in up to 1,227 unit trusts which are offered by 50 different fund managers. These funds provide a diversity of sectors, geographical regions and also risk levels that investors can choose from based on their own investment preference.
Also launched recently by FSMOne is their Exchanged Traded Fund (ETF) Regular Savings Plans (RSP). The ETF RSP allows Singapore investors to invest in a small, fixed amount regularly into a selected list of 40 ETFs listed on the Singapore Exchange (SGX), Hong Kong Exchange (HKEX) and US stock exchanges.
If you prefer to have a portfolio that is managed by professionals, you can make RSP investments into FSM Managed Portfolio (FSM MAPS). FSM MAPS allow investors to invest in different portfolios depending on their risk profiles. This way, investors do not have to worry about having to actively monitor the market and manage their portfolio.
Besides being able to avoid market timing, there are a few notable advantages to using RSP.
Get Started With A Low Sum: One advantage of RSP plans is that it also allows you to get started with just a small sum of money. For ETF RSP offered by FSMOne, investors can start investing from as little as $50 each month. For unit trusts offered via RSP by FSMOne, you can get started at $100 a month, while FSM MAPS start at $500 each month.
Disciplined Approach: One of the keys to being successful in your investment is to have the discipline to invest regularly. RSP helps make investments automatically on behalf of investors each month, based on their instructions until they 1) change their order or 2) cancel it. It’s important to note that even with RSP, you still maintain cashflow flexibility because you are still able to reduce or to cancel your RSP investments at any point in time that you wish. While this isn’t encouraged, it’s good to know you at least have this option.
RSP Plans Are Not Risk-Free
All investments come with it some form of risk and Regular Savings Plans (RSP) are no exception. While you may eliminate the risk of (poor or unlucky) market timing, you need to remember that you will still be exposed to other risks inherent in the investments that you have made.
For example, if you invest in a country and/or sector that does badly in the next 10 years, you will still face investment losses, whether you invested via RSP or bought the funds or stocks in a lump sum.
Also, unless you are investing via the FSM Managed Portfolio (FSM MAPS), you will still need to manage your own portfolio. A Regular Savings Plan (RSP) isn’t a buy-and-forget portfolio. While the investments are automatically made on your behalf each month, you need to monitor your portfolio to see if it still meets your investment objectives. You will also need to do your own research on the type of investments that you want to make, and to consider the risk-return trade-off.
A Regular Savings Plan (RSP) is a good way to get started on your investment journey. Beyond that, it’s also a good way for you to stay vestedin this investment journey.