This article was written in collaboration with SGX. All views expressed in this article are the independent opinion of DollarsAndSense.sg
The start of a new year presents a great opportunity to motivate ourselves to work on what is important to us. For some, it is to lose weight, eat healthier or spend more time with our family. For others, it could be to start on something we have never tried before, such as learning how to invest on our own.
There are two main ways you can invest.
The first is to appoint someone to invest for you. You pass them money and in return for a management fee, they will invest on your behalf.
The other way is to do it yourself. Unlike getting someone to invest on your behalf, you enjoy full control over what you are investing when you do it on your own.
If learning how to invest is one of your New Year’s resolutions for 2019, then understanding how Regular Shares Savings plans work can be a good first step to take.
How Do Regular Shares Savings Plans Work?
Regular Shares Savings (RSS) plans allow you to invest a specific amount of money each month into stocks, exchange-traded funds (ETFs) and real estate investment trusts (REITs) of your choice on the Singapore Exchange (SGX). Investors can invest from as little as $100 a month.
RSS plans do not require investors to time the market. The investment is automatically made each month, on behalf of the investors, following the instructions given by the individual. This means that if share prices for the month are higher, the investor will buy fewer shares. Conversely, if share prices are lower for the month, the investor will buy more shares.
Here’s a simple illustration. Assuming Alex wishes to invest $6,000 into an ETF over the next six months. Currently, each unit costs $1.00. However, Alex is worried about price volatility as the market have been experiencing wild swings lately.
Without an RSS plan, Alex may invest the entire $6,000 into an ETF today. He receives 6,000 units.
With an RSS plan, Alex can choose instead to invest $1,000 a month into the ETF, over the next six months.
Let’s assume the following price changes.
No. of Shares / ETF Units Bought
|February||$1.10||$1,000||909 (buy less)|
|March||$1.20||$1,000||833 (buy less)|
|April||$0.90||$1,000||1,111 (buy more)|
|May||$0.80||$1,000||1,250 (buy more)|
Half Year Review
Average Share Price: $1.00
From the table above, you can see that despite the volatile price fluctuation across the six months, Alex does not need to worry about timing the market as he is committing a small, fixed amount each month, as opposed to a large lump sum investment.
Dollar-cost averaging over the six months reduce Alex’s exposure to volatility and is a good strategy to accumulate the stocks, ETFs and REITs of his choice over the long term.
Aside from having the implicit benefits of utilising a dollar-cost averaging approach to investing, RSS plans provide you with flexibility, as there is no lock-in period that dictates how long you need to stay invested.
While staying invested over the long-term is encouraged, you can stop, amend or sell your RSS plan at any point in time that you want.
Providers That Offer RSS Plans
RSS plans are currently offered by four providers in Singapore, each giving different variation of counters that you can invest in through their platform. Commission fees are also different for each provider.
Number of Stocks: 2. Nikko AM STI ETF & ABF Singapore Bond Index Fund
Fees: 1% for Nikko AM STI ETF, 0.5% for ABF Singapore Bond Index Fund
Number of Stocks: 18 counters in Singapore market to choose from including Nikko AM STI ETF, Comfort Delgro, Olam International and Wilmar International
Fees: 0.30%, or $5 per counter, whichever is higher
Number of Stocks: 54 counters in the Singapore market to choose from including, Nikko AM STI ETF, SPDR STI ETF, Singtel and CapitaLand
Fees: Less than $1,000 investment: 1% (minimum $1), $1,000 and more: 0.18% (minimum $10)
Number of Stocks: 39 counters including SPDR STI ETF, CapitaLand Mall Trust, Singapore Airlines and ST Engineering
Fees: $1,000 investment or less: $6 if two counters or less. $10 if three counters or more, more than $1,000: 0.2% or $10, whichever is higher
Depending on how much you intend to invest each month, and the counters you want to invest in, you may find one provider to be more suitable for you than others. Choose the one that best fits your needs.
RSS plans are a convenient way to get started investing, since they are automatic and affordable (at $100 a month, even NSFs and students can invest through them), they are not the only way that you can invest.
As you build up your investing knowledge over time, you may prefer to buy stocks that are not offered by any of the four RSS plans. You may also want to start timing the market so you only invest when you deem the prices to be attractive.
The point here is that even though RSS plans are a good way to get started with investing, you should strive to build up your investing knowledge as you advance in your investing journey, as opposed to just sticking to investing using only RSS plans.
RSS Plans Are NOT Risk-Free
Another common misconception that some new investors have is that an RSS plan is safer. This isn’t true. An RSS plan, as explained in this article, is a method of investing in stocks, ETFs and REITs listed on SGX.
When you invest through an RSS plan, you still have to decide 1) how much you wish to invest each month and 2) the shares that you wish to buy. These decisions that you make is directly correlated to the risk that you will be taking.
While an RSS plan reduces your risk of timing the market wrongly, the risk-return trade-off that you take on as an investor is still subject to the investments that you make.
If you are looking to find out more about how RSS plans can help you get started on your investing journey in 2019, check out the various events and seminars that SGX is organising.
You can also watch this video from SGX on how RSS plans work:
For more information about RSS plans, you can also check out the RSS Plans landing page on the SGX website.