2 ways to invest regularly and for the long-term

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2 ways to invest regularly and for the long-term

10 August 2021

Putting money into your investments on a regular basis is a smart way to build your portfolio. This way, you don’t have to worry about the best time to invest. You simply invest a regular amount each month to ride out price fluctuations, unlike a lump-sum investment which puts you at the mercy of market timing.

There are multiple ways to start investing your money regularly.

Note: Following figures used are indicative and for illustrative purposes only. All units purchased are rounded to the nearest 100.

1. Regular Savings Plans (RSPs)

RSPs enable investors to kickstart their investing journey by committing as little as $100 each month. They are an ideal way for new investors with limited funds, knowledge and confidence to invest on their own.

They also provide flexibility for investors to stop investing, increase or decrease their monthly investment amount, and cash out their investments without any penalties. However, investing is usually a long-term game, and you need the discipline to stay invested over the long term for the best results.

They are also a good way for experienced investors to manage their behavioural biases, emotions and propensity to time markets, allowing them to continue ploughing money into the market for their investments in the long-term while they seek higher growth investments with a separate portfolio.

How RSPs work:

Embarking on a Regular Savings Plan

Regular Savings Plan vs Lump Sum (or one-time) investments

2. Value Averaging Plans (VAPs)

A Value Averaging Plan allows you to set a target growth rate that you’ll like to achieve for your portfolio, and you also have the flexibility to set a maximum and minimium range for your monthly investment. Similar to RSPs, you invest more when markets are cheap and less when markets are up. However, a VAP enables to achieve your target growth rate, and your monthly investment amount may fluctuate, within a set range, depending on market conditions.

Also unlike RSPs, you should ideally own a starting portfolio that you wish to grow. Rather than funding your investments through a monthly GIRO transfer, your VAP will be funded by switching out funds from 1 of 3 cash management accounts, also known as money market funds:

Ideally, you should fund between 3 and 6 months worth of investments in the cash management account of your choice, as well as periodically increase your savings. With the low interest rate environment, you can take advantage of cash management accounts to grow your savings, that you do not need to use immediately, at a higher rate than most ordinary bank accounts.

How VAPs work:

Building a Portfolio via VAP

With a VAP, you are able to invest the shortfall amount in order to meet your target growth rate. If the market is performing to meet your target growth, you will only need to invest the minimum amount set by you. Likewise, if the market is under performing, the maximum investment per month will not exceed the maximum amount set by you.

This way, you always buy more during bear markets and less during bull markets.

Benefits of a Value Averaging Plan

Shares virtually all benefits of investing via a Regular Savings Plan with an additional feature of setting a specific target growth for your portfolio and the flexibility to set a minimum and maximum range for your monthly investment.
In addition, your monthly contribution will be adjusted to help you achieve the desired monthly target growth rate you set.
You will invest even more aggressively to hit the target growth rate when your portfolio is experiencing slow growth or is underperforming, but not exceed the maximum investment amount you set as a cap. On the other hand, you will invest less when your portfolio is performing well and growing, going a step further than Dollar Cost Averaging.

Key Takeaway

It’s not about which strategy is better.
What’s more important is your personal situation, budget, risk appetite and time horizon.
Even as an experienced investor, you can even choose both or multiple strategies in your portfolio for different reasons.

Whether it is through a Regular Savings Plan or Value Averaging Plan, you can begin investing into unit trusts today from as little as $100 a month, with no hidden fees incurred. Log in or open an account to start building your wealth today!