Did you know that Singaporeans are the second-biggest gamblers in the world? According to a British gambling consultancy we’re supposed to have lost an average of almost $1200 in 2013. The biggest culprits are casino goers and lottery players. I’m sorry, but that’s just insane! Investing that same amount is still a gamble but it’s got WAY better odds that the 1 in 10,000 that a 4D first prize gives you.
But wait! Don’t you need lots of capital and effort to invest? Lottery tickets are so much cheaper and easier to obtain! Maybe in the past that was true, but with a Regular Savings Plan there’s no excuse NOT to start investing the second you turn 18.
What is a Regular Savings Plan?
A Regular Savings Plan invests a fixed amount of funds every month into buying shares or unit trusts. Regular Savings Plan uses an investment method called dollar-cost averaging to protect the investor from most of the volatility of stocks. Dollar-cost averaging uses the same amount of funds to buy more when prices are low and buy less when prices are high. Learn more about dollar-cost averaging here.
A Regular Savings Plan is the best option if you are a beginner investor. It is also suitable if you are someone who does not have the time or the patience to watch the stock market regularly and react accordingly to fluctuations. It is designed for medium to long-term investments, so don’t expect to make a quick buck.
What Regular Savings Plans are available?
Singapore currently offers three options: POSB Invest-Saver, OCBC Blue Chip Investment Plan and POEMS Share Builders Plan. In a bid to remain competitive, all of them now allow you to begin investing with as little as $100 a month!
What sets them apart are the share counters you can invest in, and the cost of investing with them.
Each Regular Savings Plan available gives you the opportunity to invest in an STI ETF. This is an Exchange Traded Fund that invests in the top 30 listed companies on the Singapore Stock Exchange. That means, using as little as $100, you can invest in 30 Singapore blue-chip companies including DBS, OCBC, SingTel, UOB and Keppel Corp. Find out more about Exchange Traded Funds in our Learning Centre.
In addition to an STI ETF, newcomer Maybank Kim Eng gives you the chance to invest in over 200 share counters, like Google and Apple, in 5 different countries. POEMS also gives you the option of investing in 19 other individual counters like CapitaMall Trust, SIA and ST Engineering. OCBC offers many of the same, but includes 18 other individual counters like ComfortDelGro, Olam International and Wilmar International. POSB only offers two options, the ABF Singapore Bond Index Fund and the Nikko AM STI ETF.
When it comes to dividends earned, POEMS and POSB offers the ability to channel any dividends you earn back into your Regular Savings Plan. Neither OCBC or Maybank Kim Eng has such an option for now.
How much does it cost to invest in a Regular Savings Plan?
POSB charges the most by percentage, with fees of 1% of the amount invested in the Nikko AM Singapore STI ETF and 0.5% for the ABF Singapore Bond Index Fund. That means if you invest $200 a month, the fee should be $2 a month for the STI ETF and $1 for the Bond Index Fund. However, just looking at the absolute percentage can be misleading, as we will show you later.
Depending on how much you invest, Maybank Kim Eng either charges the most (1% for amounts less than $1000) or the least (0.18%-0.2% for amounts $1000 and above, depending on which market the share counter is in). What’s more, until 31st of August this year, all commission fees are waived. This makes for an interesting comparison, as you’ll see below.
OCBC charges only 0.3% of the amount invested, but has a minimum charge of $5 per counter. That means if you invest $200 a month, the fee is $5. If you invest $1666 a month, the fee is $5. Unlike POSB, however, OCBC also charges 0.3% or $5 whichever is higher when you cash in your investments.
POEMS has a slightly complicated system where it depends on the investment amount and how many counters you’re investing in. If your investment amount is less than $1000, then for 1 or 2 counters, sales charge is a flat rate of $6, for 3 or more counters, sales charge is a flat rate of $10. If your investment amount is more than $1000, then the charge is 0.2% or $10 whichever is higher.
Or enjoy zero sales charge with the UOB Young Professionals Solution
The UOB Young Professionals Solution allows you to channel your interest earned from the UOB One Account and the cashback rebates from any UOB Credit Card, and invest them in unit trusts.
With the Sweep feature of the Young Professionals Solution, you can buy unit trusts with your earned interest and rebates and enjoy zero sales charge for your monthly investment. The usual sales charge is 2% per transaction, which can really eat into your earnings over time, so waiving them really goes a long way.
Unlike most Regular Savings Plans, Sweep only allows you to invest in one unit trust fund – the United SGD Fund, a low to medium risk investment product by UOB. But because it’s optional, you can choose to join or leave and stop channelling your accumulated interest and cashback rebates to the unit trust fund anytime.
So, which Regular Savings Plan should you use?
Ideally, you would want to reduce the cost of investing. If you’re planning to invest an amount between $100 and $500 a month, you should go with POSB or Maybank Kim Eng. The 1% sales fee means you pay between $1 and $5. If you’re looking at between $500 and $3333.33 a month, you might want to go with OCBC (depending on how many counters you invest in).
The 0.3% or $5 fee means you pay between $5 and $10 a month. If you’re able to invest $3333.33 or more a month, go with POEMS or Maybank Kim Eng. The fee you pay is $10 or 0.18% (Singapore shares with Maybank Kim Eng) or 0.2% (POEMS or US, HK, MY or TH markets with Maybank Kim Eng), whichever is higher.
Take the case study of the fictitious Mr Tony Teo. He earns $3000 a month and is able to set aside $500 for investments. He is an investment virgin who doesn’t have the expertise or the patience for a more complex investment. He decides to invest using a Regular Savings Plan.
Mr Teo feels overwhelmed by the various share counters POEMS makes available to him. If he chooses to invest his $500 in just two counters, he will be paying at least $6 a month, or more than 1% of the transaction fee. The fees get worse if he wants to invest in two counters with OCBC. He will pay $5 per counter, which comes up to $10 a month, or 2% of the transaction fee.
With Maybank Kim Eng, Mr Teo could take advantage of the current promotion where the fees are waived till 31st August 2015. He could also be interested in investing into overseas share counters in the US, Malaysian, Thai and Hong Kong markets. This gives him access to popular tech counters like Apple and Google. However, once the promotion ends, he will be paying $5 in total, or 1% of his investment amounts.
POSB Invest-Saver is the only Plan that offers investors the opportunity to diversify into bonds, which are less volatile than shares. Despite the higher transaction charge by percentage, they are actually the best option for investors who can only set aside a small amount to invest each month. With $500 a month, Mr Teo has the option of choosing to invest in bonds and shares! If he chooses to invest $300 in the STI ETF and $200 in the ABF Index Fund, he only pays a sales fee of $3 for the shares and $1 for the bonds! That’s $4 in transaction fees for POSB Invest-Saver compared to $5 for Maybank Kim Eng Monthly Investment Plan and $6 for POEMS Share Builders Plan.
So if you’re a small-time investor who doesn’t have the patience to monitor the stock market on a daily basis, then POSB Invest-Saver is the Regular Savings Plan for you.
So forget spending even a cent on 4D, Toto or Big Sweep. Just $100 a month in a Regular Savings Plan is the best “gamble” you’ll ever take.
Have you invested in a Regular Savings Plan before? Share your experiences with us!