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The start of a new year is always a good time to set important resolutions for ourselves. Having just counted down to 2024, one such resolution that we may have is to embark on our investment journey.
The main aim of investing is to help us grow our money. Whether through capital gains or dividend payouts, investing allows us to generate returns from the assets that we have invested in. This is important for other life goals we are working towards, such as early retirement, gaining financial independence, or building an alternative passive income stream, so that we don’t have to rely solely on our employment income.
At the same time, investing can be daunting, especially for first-time investors. The fear of investing at the wrong time or the uncertainty of what to invest in are common concerns.
Take A Dollar-Cost Averaging Approach (DCA) To Overcome Market Timing
Among the financial markets, the stock market in particular is dynamic. Whether due to macroeconomic conditions or company-specific reasons, prices will fluctuate up and down.
This may scare some would-be investors, but volatility may not need to be a major worry if we take the right approach towards investing.
As a long-term investor, short-term price fluctuations should not affect us. After all, if we are investing for the long-term, what is more important for us is the long-term prices of the assets that we invest in, not whether prices drop or increase one month after we start investing.
Dollar Cost Averaging (DCA) is a conservative investment strategy that provides inherent protection against market volatility and help remove the hassles and risks associated with trying to time the market (source: Nikko AM).The basic idea behind DCA is that we set aside a fixed amount of money each month for investing, regardless of the price fluctuations. By doing so, we would naturally purchase more investment units when prices are low and fewer investment units when prices are high. Over time, we pay an average price for the assets that we invest in.
From a budgeting standpoint, DCA also helps us to be disciplined in investing a part of our monthly salary each month. For example, if our New Year’s resolution is to invest 10% of our $5,000 salary, we can make it a point to set aside and invest $500 each month.
However, like all investments, there are risk factors to be considered when investing in a certain sector or region.
DCA does not absolve one from the need to conduct the personal due diligence required before making any investment decisions. Dollar cost averaging into a bad investment doesn’t make it a good investment.
Such risks are especially apparent in instances where the securities or sectors involved are in a downward trajectory over the long term, or when it comes to tech heavy “growth” or “disruptive innovation” sectors, or cryto-related sectors that are very volatile in nature (source: Nikko AM).
How To Use Regular Savings Plan (RSP) For DCA
To implement a DCA investment strategy in Singapore, we can use regular savings plans, also known as RSPs.
Offered by multiple banks and brokerage firms in Singapore, including DBS, FSMOne, OCBC, Phillip Securities, and POSB, a RSP allows us to invest a fixed sum of money each month in the investment of our choice. All we need to do is put in our RSP order with the bank or brokerage firm that we are using. This order would include the assets (e.g. ETFs, unit trusts, stocks) that we want to invest in and how much we are investing.
Through RSP, we can invest as little as $100 a month. This low barrier of entry is vital, as it allows new investors to start their investment journey without having to invest a large amount from the start. Over time, as we become more knowledgeable about investing and gain confidence, we can increase the amount we want to invest each month.
One good thing about starting our investment journey via RSP is that there is no investment commitment period. At any point in time, we can change the types of investments we make, increase or reduce the monthly investment amount, or even stop investing altogether.
Investing In ETFs (Via RSP)
For investors who are new to investing or want a diversified investment portfolio, we may wish to consider investing in ETFs via RSP. While they trade like stocks on the exchange, ETFs are professionally managed investment funds that typically invest in a diversified basket of stocks or bonds, tracking the performance of a specific index.
For example, if we wish to invest in the 30 largest companies listed on the Singapore Exchange (SGX), we can consider investing in the Nikko AM Singapore STI ETF (SGX: G3B) through a RSP. Listed on the SGX since February 2009, the Nikko AM Singapore STI ETF tracks the performance of the Straits Times Index (STI), which in turn represents the top 30 listed companies on the SGX mainboard ranked by market capitalisation.
If we are looking to invest in fixed-income instruments such as Singapore government bonds, we can consider the ABF Singapore Bond Index Fund (SGX: A35). Listed since August 2005, the ETF tracks the performance of the iBoxx ABF Singapore Bond Index, which in turn is an indicator of the investment return of debt obligations denominated in Singapore dollars issued by the government of Singapore or other Asian governments.
We can also invest in Real Estate Investment Trusts (REITs) via the NikkoAM-StraitsTrading Asia ex Japan REIT ETF (SGX: CFA/COI) and other ETFs listed in Singapore via RSP.
One advantage of ETFs is that they are “self-healing”. As explained by Nikko Asset Management, companies that have underperformed are automatically removed from the index, and replaced by companies that performed well within the review period. For instance, if we invest in the Nikko AM Singapore STI ETF that tracks the STI, we will always get exposure to the top 30 companies listed on the Singapore Exchange. Weak companies will naturally drop out of the basket of 30 stocks and be replaced by newer and better-performing companies.
Read Also: Investing In ETFs: What Happens When A Constituent Is Removed From The Index?
Even as we start our investment journey, we should not presume that investing in ETFs via RSP is a sure-win strategy. After all, similar to investing in stocks, it’s the type of ETF investments that we make that determine the investment returns (or possibly losses) that we make. ETF is an asset class, and like all investments, there could be good or poor ETF investments that are made.
Important Information by Nikko Asset Management Asia Limited:
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 Fund or any underlying fund may use or invest in financial derivative instruments. The value of units and income from them may fall or rise. Investments in the Fund are subject to investment risks, including the possible loss of principal amount invested. You should read the relevant prospectus (including the risk warnings) and product highlights sheet of the Fund, which are available and may be obtained from appointed distributors of Nikko AM Asia or our website (www.nikkoam.com.sg) before deciding whether to invest in the Fund.
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. This advertisement has not been reviewed by the Monetary Authority of Singapore.
The performance of the ETF’s price on the Singapore Exchange Securities Trading Limited (“SGX-ST”) may be different from the net asset value per unit of the ETF. The ETF may also be suspended or delisted from the SGX-ST. Listing of the units does not guarantee a liquid market for the units. Investors should note that the ETF differs from a typical unit trust and units may only be created or redeemed directly by a participating dealer in large creation or redemption units.
Nikko Asset Management Asia Limited. Registration Number 198202562H.
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