With a plethora of investment vehicles out there, I wasn’t quite sure what to invest in. So I did a little exercise to explore potential options:
With a clearer idea of where my funds could be deployed, I looked for available service offerings for each of those products. I will be sharing about what I did in the next few posts.
Regular Savings Plans (RSPs) for bite-sized investing
A common issue touted by new and especially young investors is a lack of capital outlay. Understandably, not everyone can shell out $10k for a single stock purchase without batting an eyelid as a first investment move.
This is where RSPs offered by various banks and brokerages can be useful for small investment amounts. RSPs use a dollar-cost averaging (DCA) approach to investing which is not only good for those with small starting capitals but also great for disciplined, mechanical investing.
Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset’s price and at regular intervals; in effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices.Investopedia.com
The DCA vs. lump-sum conundrum
Many have written about whether DCA or lump-sum is better for investing and there are indeed true benefits and flaws of either. You can read more and decide for yourself which suits your investment plan and perhaps adopt a two-prong approach of both instead of bashing one or the other. My preference is for lump-sum wherever possible but it’s not always practicable
The true value of a DCA approach is that it helps to reduce risk while accumulating wealth by removing market timing. Hence, investing with RSPs is a great strategy for amateur and passive investors alike. Personally, I also find that it enforces discipline in investing and helps me to ease my monthly cash flow compared to lump-sum investing.
Don’t disregard fees – they are INSIDIOUS
While automating your investments through RSPs can eliminate irrationality and effort, do bear in mind that fees can eat into your returns (early mistake I made) especially with small investment amounts.
I started off using OCBC Blue Chip Investment Plan* simply because I was using the OCBC 360 account as my salary crediting account. I was paying $5 for a measly monthly investment amount $300 which is really BS on hindsight. That equates to 1.7% in fees that I was paying every month, or an equivalent of $60 per year! For small investment amounts EVERY. DOLLAR. COUNTS. Thankfully I realised this soon enough got out pronto.
*I just checked OCBC’s website and it seems they have revised their fees to be more competitive for customers under 30 years old. You can check it out here if you’re interested.
So don’t make the mistake I made and go shop around for the lowest fees depending on your investment amount and choice of investment product (stocks, ETFs, or mutual funds) to ensure that you are getting the best deal. The price to pay for laziness and convenience is really not worth it.
Currently, I am using FSMOne’s RSP to diversify into growth equities in overseas markets as well as megatrends that interest me. Their fee structure is attractive compared to other brokerages as I only have to pay USD1.07 per ETF (for a monthly amount of up to USD1250) that is listed on the US markets. If you wish to set up an FSMOne account, you can do so here. If you could be so kind, leave a comment with your email address too so I can share my referral code with you and get some rewards points!
Sidenote: as most of these RSPs are held in custodian accounts i.e. you do not need to create a CDP account, do also take note of corporate action handling fees they charge that may diminish your returns.
What to buy for your RSP?
For stocks RSPs, they are usually limited to typical blue chip counters found on the SGX. However for ETFs and unit trusts, the options are much more with over hundreds you can choose from depending on what platform you use. I like to use websites like this and this for ideas and screening.
If you are still unsure of what individual products to select for your RSP, you can choose to use a roboadvisory platform to help you simplify the process but still take advantage of a DCA approach. I will be discussing the roboadvisory platform that I use in part 2 of this series so look out for that soon!