RSPs are a simple and smart way to start investing and achieve your financial goals.
This post was created in partnership with Nikko Asset Management Asia Limited. All views and opinions expressed in this article are Beansprout's objective and professional opinions.
- A Regular Savings Plan (RSP) allows you to invest a fixed sum of money consistently.
- By using a RSP, you can avoid the stress of having to find the perfect time to start investing as your entry price will be smoothed out with time.
- You can also reduce the hassle of making repeated fund transfers.
- By setting up a RSP and investing in ETFs, you can further spread out your risks.
You’ve set yourself a resolution to start investing in 2023. Today, you’re waking up to realise that it’s March but you’ve not done anything to bring yourself closer to achieving the resolution.
There might be many reasons why you've not taken any action. Your boss has become more demanding. Your mum asked you to help with Chinese New Year spring cleaning. And then your friends asked you along for a last minute trip to Bangkok (which you couldn’t turn down).
Panic mode aside, it’s time to get down to starting somewhere. And since the work and chores (and of course holidays) are not going away, let’s try to find the easiest way to get you started.
Getting started with a Regular Savings Plan (RSP)
Here’s what you need to know - a Regular Savings Plan (RSP) allows you to invest a fixed sum of money consistently, which makes it a really simple and smart way to start investing.
With a RSP, you can start small with as little as $50. You can also do away with constant reminders because the money will be deducted from your designated account automatically on a fixed day every month.
A RSP is smart because it offers a consistent way to reap the rewards of investing by adopting a dollar cost averaging approach.
By dollar cost averaging, you are effectively dividing your money into equal monetary amounts to be periodically invested on a regular basis.
This investing method reduces the risk of poor market timing and helps to smooth out market volatility
Let’s look at an illustrative example of how this works.
For example, you may have decided to put aside $100 per month this year to invest in the STI Index ETF through a RSP.
In January, you would purchase 10 shares in the STI Index ETF based on the ETF price of $10.
Likewise, you would do the same even when the price of the STI goes up to S$10.50 in February or falls to $9 in August.
By doing so consistently every month, you would be able to purchase about 118.4 shares over the year.
With the fluctuation in the price of the STI Index over the year, you would be able to purchase these ETFs at an average price of about $10.20.
If the STI Index ETF closes the year at $10.50, you would have made a gain of about $44 with your $1,200 investment.
|STI Index ETF||Contribution (S$)||Shares bought||Shares owned||Total value (S$)|
What should I invest in using a RSP?
Some of the products we can buy as part of a RSP include single stocks, exchange traded funds (ETFs), and unit trusts.
Amongst these products, ETFs are often seen as being most compatible with a long-term DCA strategy.
If you are not familiar with ETFs, they are effectively a low-cost way for you to own a diversified basket of securities with one single trade.
The benefit of ETFs compared to unit trusts is that they generally incur lower expenses, which means that you would potentially be able to earn a larger share of the rewards over time.
The benefit of ETFs compared to single stocks is that by investing in a basket of companies, your investment risks are spread out.
For example, in the case of a recession, some companies may lose significant value and a few may even face financial distress if they are not well prepared to deal with the economic downturn.
As a result, you may lose some of your capital even if you use a DCA strategy to purchase these single stocks.
However, by holding a diversified basket of stocks, a significant portion of these companies will likely survive the downturn even if some may fail. After all, a recession will not last forever.
When the economy recovers and the prospects of these companies improve, the value of the ETF would likely increase as well.
|Costs||Relatively low cost||Relatively low cost||Relatively higher costs|
|Diversification||Not diversified||More diversified||More diversified|
What do i need to be mindful of when using a RSP?
The good thing about a RSP is that you can start from as low as $50 or $100 monthly, depending on which brokerage you invest with.
However, we should be mindful of transaction costs when investing using a RSP.
Using an example of a brokerage that has a fee of 0.50% per transaction, you would incur about $0.50 of fees if you invest $100 using a regular savings plan.
Some others may have a minimum fee of $1, which means that the average cost of investing using a regular savings plan would be lower for a larger investment sum of money.
Remember that such costs would eat into your potential returns.
As all investments come with risks, you should not invest money you need in the short-term. Instead, such emergency funds should be stored in a product such as a high-interest savings account.
|Minimum investment/month||Fees||ETF Products available|
|DBS Bank/POSB Invest-Saver||S$100||0.5-0.82% per transaction||4 SGX-listed ETFs|
|OCBC Bank||S$100||0.88% per transaction (New customers below 30 years old)||7 SGX-listed ETFs|
|Phillip Capital||S$100||$6 for 2 or less counters, S$10 for 3 or more counters||13 SGX-listed ETFs|
|FSMOne||S$50||0.08% or min SGD 1, HKD 5, USD 1, whichever is higher||40 ETFs listed in Singapore, Hong Kong and US|
What would Beansprout do?
If you have always wanted to start investing but find it hard to build the habit, then a RSP offers a convenient way for you to get yourself on track.
You will be able to avoid the stress of having to find the perfect time to start investing, as your entry price would be smoothed out with time.
In addition, you will be able to avoid the hassle of making repeated manual fund transfers into your brokerage accounts, and use the time saved on doing the things you enjoy.
By setting up a regular savings plan and investing in ETFs, you will get the additional benefit of spreading your risks and not having to pick stocks.
However, we need to be mindful of the costs of setting up a RSP, to make sure that our potential returns are not eroded.
Click here to find out more about how a Regular Savings Plan works and what are some of the ETFs to consider when investing using a Regular Savings Plan.
This document is purely for informational purposes only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. It should not be relied upon as financial advice. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. You should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you. Investments in funds are not deposits in, obligations of, or guaranteed or insured by Nikko Asset Management Asia Limited (“Nikko AM Asia”). Past performance or any prediction, projection or forecast is not indicative of future performance.
The information contained herein may not be copied, reproduced or redistributed without the express consent of Nikko AM Asia. While reasonable care has been taken to ensure the accuracy of the information as at the date of publication, Nikko AM Asia does not give any warranty or representation, either express or implied, and expressly disclaims liability for any errors or omissions. Information may be subject to change without notice. Nikko AM Asia accepts no liability for any loss, indirect or consequential damages, arising from any use of or reliance on this document.
Nikko Asset Management Asia Limited. Registration Number 198202562H.
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