Building wealth and financial stability is a top priority for many individuals in our fast-paced world. Singapore, one of Asia’s wealthiest countries, offers several options to achieve this goal. One such option is through regular savings plans. A Regular Savings Plan (RSP) is a disciplined investment approach where a fixed amount of money is invested regularly over time. It allows individuals to build wealth steadily without pressure to make lump-sum investments. RSPs are especially beneficial for those lacking financial discipline or new to investing.
Assess your financial goals
Before starting any regular savings plan, it is essential to assess your financial goals. This step involves determining your objectives and desired outcomes for your investments. Are you looking to save for retirement, a down payment on a house, or your child’s education? Knowing your long-term financial goals will help you determine the amount of money you need to invest regularly.
For instance, if you plan to retire in 20 years and want your retirement fund to have a value of SGD1 million, you must invest approximately SGD4,200 monthly. Break down your goals into short-term objectives achievable within a year.
Once you have a clear picture of your financial goals, you can determine the best investment options that align with your objectives.
Understand the types of regular savings plans
Singapore has two main types of RSPs: unit trust and insurance-linked policies. Unit trusts allow you to invest in a portfolio of stocks, bonds, or other securities managed by professional fund managers. On the other hand, insurance-linked policies are investment plans bundled with life insurance policies. The premiums you pay for these policies go towards investment funds.
Understanding the differences between these RSP types is crucial to choosing the one that best suits your needs and risk appetite. Unit trusts have higher returns potential but come with higher risks than insurance-linked policies.
Investors should also consider the fees associated with each type of RSP. Unit trusts often have higher management fees, while insurance-linked policies may come with surrender penalties if you terminate the plan early.
Determine your risk appetite
Your risk appetite refers to your tolerance for taking risks with your investments. Understanding your risk appetite before starting a regular savings plan is essential, as it determines the type of investment vehicles you should consider.
Insurance-linked policies may suit you better if you are risk-averse, meaning you prefer lower risks and are uncomfortable with market fluctuations. These plans often guarantee a minimum return, providing peace of mind for risk-averse investors. On the other hand, if you are comfortable with market risks and have a long-term investment horizon, unit trusts may provide higher returns in the long run.
Investors should also consider their age and financial situation when determining risk appetite. Younger investors with a longer investment horizon may have a higher risk tolerance, while older investors nearing retirement may prefer lower-risk investments.
Choose a reliable financial advisor
Choosing the right financial advisor is crucial when starting an RSP. A good advisor should understand your financial goals and risk appetite and recommend suitable investment options. They should also have a good track record of managing investments and be transparent about any fees or commissions they receive.
Investors can also consider using robo-advisors, which use algorithms to recommend personalised investment portfolios based on an individual’s risk profile and goals. These platforms often have lower fees compared to traditional financial advisors.
It is also crucial to conduct thorough research and compare different advisors before deciding. Investors should consider factors such as experience, qualifications, and customer reviews.
Regularly review and adjust your RSP
Once you have started your RSP, it is essential to regularly review and adjust it according to changes in your financial goals and risk appetite. For instance, if you receive a salary increase, consider increasing your monthly investments. Similarly, you may adjust your RSP accordingly if your risk tolerance changes.
It is also crucial to review the performance of your chosen investment vehicles and make any necessary changes. For example, if a unit trust underperforms consistently, you may consider switching to another fund or type of RSP.
Stay disciplined and patient
Building sustainable wealth through regular savings plans requires discipline and patience. It is essential to stick to your investment plan, even during times of market volatility. It will help you avoid panic selling and potentially losing long-term gains.
Being patient and not expecting immediate returns from RSPs is also crucial. Building significant wealth takes time, and staying committed to your investment plan for the long term is essential. It is also vital to resist the temptation to withdraw your investments for short-term gratification.
Investors should also regularly monitor and track their progress towards their financial goals. It can help motivate them to stay disciplined and patient, knowing that their investments are moving them closer to achieving their objectives.