What Do Regular Shares Savings Plans Mean For Your Financial Future?

My Gateway (92 x 92)Regular shares savings (RSS) plans are a convenient way to invest which has become more prominent recently with OCBC and DBS Group introducing plans, which are similar to the Phillip Share Builders Plan.

The plans allow investors to invest in a variety of Singapore blue chip stocks or an Exchange Traded Fund (ETF) that tracks the performance of the Straits Times Index (SGX: ^STI). The SPDR STI ETF (SGX: ES3) has delivered total returns (that is, returns from movements in their share prices and dividend payouts) averaging 10.2 per cent a year in the last 10 years.

RSS plans have several underlying investment principles that allow novice or young investors to be on track for progressive investment wins without exposing themselves to unnecessary risks. The three key features of the RSS Plan are automation, dollar cost averaging and compounding.

1. Automation

When your pay cheque comes in every month, it can be really tempting to indulge in immediate gratification and purchase the branded handbag you have been eyeing, or the latest gadget. With RSS plans, an automated investment facility is put in place. You can therefore ensure that funds are automatically set aside first for your chosen investment mix, with your remaining salary as income to be spent at your discretion. With the automation of your investment process, you can do away with some of the psychological aspects of decision-making and attain a certain level of financial discipline and commitment.

2. Dollar cost averaging

Dollar cost averaging is a simple and straightforward process of investing a fixed dollar amount on the same day of every month. As discussed in the newsletter Regular Investing made simple!, dollar cost averaging works like this:

  • If the share price is higher than it was the previous month, you will buy fewer shares with the fixed dollar amount.
  • If the share price is lower than it was the previous month, you will buy more shares with the fixed dollar amount.
  • Thus you automatically would buy less at market highs and buy more at market lows.
  • Over the year, the price paid for the share will be averaged over the different months.

Dollar cost averaging generally allows the average retail investor to bolster the investment shocks from price volatilities and reap relatively steadier and higher returns than if he were to undertake investment decisions at his own discretion.

3. Compounding

There are many advantages of being young, one of which is to reap the full benefits of the compounding effect. The gist of the compounding effect is that for investors who start investing at a younger age, their investment returns can be reinvested and multiplied over a longer term compared with investors who start investing at a stage of life when they may have other financial commitments or be nearing retirement. A younger investor can thus amass a considerably larger investment portfolio.

Let’s take a hypothetical example of two investors making monthly $100 investment returns at age 18 and 40 respectively with an average portfolio return of 5 per cent. At the retirement age of 65 years old, the younger investor will have amassed a retirement income of $227,371 while the mature investor will only have $59,799 in his account. This effectively means that the younger investor can almost quadruple his retirement portfolio if he has the discipline and commitment to start investing young!

Regular shares savings (RSS) plans

The list of stocks and ETF available by each of the three institutions are detailed in the table below.

For investors considering regular shares savings, several products are available in the market to make this possible. These enable retail investors to either buy one or more stocks from a selection of stocks that are part of the STI, or buy an exchange traded fund whose performance closely follows that of the STI. These plans start from as little as $100 a month, regardless of what stocks you buy.

Through these plans, individual or retail investors can invest in blue chip stocks, or stocks of nationally recognised and well-established companies.

Blue chips have traditionally been out of reach for retail investors because buying the smallest lot, or 1,000 shares, of these companies can easily cost a five-figure sum. By making blue chips accessible and affordable, these RSS plans help investors to build a more diversified investment portfolio over a longer-term horizon. The list of stocks and ETFs available under the respective participants are detailed in the table below.

  OCBC BCIP Phillip SBP POSB Invest-Saver
CapitaLand (C31) CapitaLand (C31) Nikko AM Singapore STI ETF (G3B)
CapitaMall Trust (C38U) CapitaMall Trust (C38U)
CapitaMalls Asia (JS8) City Developments (C09)
ComfortDelGro Corporation (C52) DBS Group Holdings (D05)
DBS Group Holdings (D05) Global Logistic Properties (MC0)
Global Logistic Properties (MC0) Keppel Corporation (BN4)
Keppel Corporation (BN4) Keppel Land (K17)
Olam International (O32) Neptune Orient Lines (N03)
OCBC (O39) OCBC (O39)
SembCorp Industries (U96) Sabana Shari’ah Compliant REIT (M1GU)
SembCorp Marine (S51) SembCorp Marine (S51)
Singapore Airlines (C6L) Singapore Airlines (C6L)
Singapore Exchange (S68) Singapore Exchange (S68)
Singapore Press Holdings (T39) Singapore Press Holdings (T39)
ST Engineering (S63) SingTel (Z74)
SingTel (Z74) ST Engineering (S63)
StarHub (CC3) StarHub (CC3)
United Overseas Bank (U11) STI ETF (ES3)
Wilmar International (F34) United Overseas Bank (U11)
Nikko AM Singapore STI ETF (G3B)  Venture Corporation (V03)

Source: SGX My Gateway

Finally, these plans allow investors to do away with the process of opening securities trading and Central Depository accounts. Investors can also invest with either cash or funds from their Central Provident Fund or Supplementary Retirement Scheme accounts.

For more information on the RSS, please visit the relevant pages at:

Investment Risk

ALL investments carry inherent risks. While products such as regular shares savings plans are designed for hassle-free investing, investors should be aware of what they are investing in. Information on companies whose stocks are traded on the Singapore stock market can be found here.

When it comes to building your financial future, RSS plans may be one way to bring you one step closer.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.

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