A Step Into Investing
Published: Friday December 14, 2018
About 5 to 10 years ago when I was still an undergraduate, I dabbled with stocks and lost money; however, with inflation eating the value of your dollar as each year goes by and the idea of earning a passive income whispering to me constantly, I have decided to step into investing again. This time, however, I will be approaching markets differently.
As the guru of investing himself, Warren Buffett, once said: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”; Instead of timing markets, I will be investing and holding my shares for at least 10 years.
Taking out a spreadsheet and calculating how much I can set aside, the figure was a miserly S$100 a month. Taking a look around at markets, it looked like I could not afford to get into markets again. However, as I did more research, I managed to find out that banks like DBS offered what is known as a Regular Savings Plan.
A regular savings plan, or RSP, overcomes the hurdles of timing and emotions. Also known as dollar-cost averaging, the approach involves buying a fixed amount of investments every month, no matter how good or bad markets look.
It takes the stress out of investing, as investors do not have to decide if the fund is expensive or not, and if market conditions are right to invest. Each month, the money goes like clockwork into pre-determined investments. Doing so can smooth out price bumps, and result in a lower average unit cost. At DBS/POSB, such plans can be put in place from as little as S$100 a month.
RSP also offers a way to let you invest at affordable amounts. With investors increasingly buying their first investment at a younger age, many may not have the ability or luxury of investing a large initial lump sum. Another benefit to starting RSPs early: the ‘magic’ of compounding means investors have more time to grow the nest egg to a sizable amount.
Merits of a regular savings plan:
- Invest without significant capital
- Get complete control over your monthly investment amount, from as little as S$100 a month
- Learn to avoid pitfalls of timing the market by avoiding the ‘right’ time to invest
your capital as a lump sum
- Take advantage of the ‘magic’ of compounding
Although I did not graduate my degree course in Economics and Finance, I did learn about markets and one thing I remembered is something called diversification.
Wanting to inculcate what I learnt in university into my investment philosophy, I felt that investing in a fund was the best solution for me.
There are many obvious reasons why unit trusts or an ETF would be great for me. First, they present an easy and relatively affordable way to build a diverse portfolio. When you purchase a share of a unit trust or ETF, you can gain exposure to hundreds of different securities without doing the research yourself. Secondly, you can get a diversified portfolio of your choice that is managed by professionals who have much more experience in investing and have put in much more effort into researching what goes into their portfolios. Also, ETFs, unit trusts, and mutual funds are quite liquid, meaning you can sell or buy your shares easily without needing to wait a long period of time.
Finally, after considering all my options, my final decision was to buy into the Nikko AM Shenton Singapore Div Eq.