This article was updated on 10 June 2019.
This article was written in collaboration with SGX. All views expressed in this article are the independent opinion of DollarsAndSense.sg
When you’re younger and just starting out in your career, investing may be the last thing on your mind. You will likely be more interested in near-term financial goals, such as planning a wedding or buying a home, or in trying to climb the corporate ladder, working long hours, learning new skills and networking with peers in your industry.
However, this is no reason to neglect investing for the longer term. In fact, the best time to start investing is when you’re “younger and just starting out in your career”.
There are two main ways you can start investing.
The first is to appoint someone to invest for you. You give them your 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 in and when you make your investments by doing it on your own.
If you have always understood the importance of investing but just haven’t gotten around to doing it, then learning about how Regular Shares Savings plans work may be the best thing you can do to kickstart your investing journey.
How Do Regular Shares Savings Plans Work?
Regular Shares Savings (RSS) plans allow you to invest a specific amount of money each month into a range of investments, such as stocks, exchange-traded funds (ETFs) and real estate investment trusts (REITs) of your choice on the Singapore Exchange (SGX). Investors can start investing from as little as $100 a month.
RSS plans do not require investors to time the market. Once the amount and specific investments have been decided, buy instructions are automatically carried out in subsequent months. This means that if share prices for the month are higher, the investor will simply buy fewer shares. Conversely, if share prices are lower for the month, the investor will buy more shares.
In an illustration below, we assume an investor, Alex, wishes to invest $6,000 into an ETF over the next six months. Currently, each unit of the ETF costs $1.00. However, Alex is worried about price volatility as the market have been experiencing larger swings lately.
Without an RSS plan, Alex may invest the entire $6,000 into an ETF today. He receives 6,000 units at a cost of $1.00.
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 Monthly 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 has reduced Alex’s exposure to volatility and is a good strategy to accumulate the stocks, ETFs and REITs of his choice over the long term.
By buying more shares when prices are low and less shares when prices are higher, Alex managed to accumulate 6,103 shares in his ETF portfolio in six months. This puts him in a better position than if he had invested all his money in the first month. This is despite the price of the ETF still being $1.00, and its average price across the months being $1.00.
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, without any penalties.
Providers That Offer RSS Plans
RSS plans are currently offered by three 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: 20 counters in Singapore market to choose from including Nikko AM STI ETF, Lion-Phillip S-REIT ETF, Capitaland, Comfort Delgro and Olam International
Fees: 0.30%, or $5 per counter, whichever is higher
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 (from as little as $100 a month, even NSFs and students can invest through them).
As you build up your investing knowledge and confidence over time, you may prefer to buy stocks that are not offered by any of the three RSS providers. You may also want to start allocating a small part of your investment portfolio to 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 start your investing journey, you should strive to gradually build up your investing knowledge, 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.