What is a regular savings plan (RSP) and how does it work?
Try not to let the ‘savings’ in the name mislead you, a RSP is an investment instrument that requires you to set aside a fixed sum on a regular basis. The money invested is channeled into assets such as stocks, ETFs and unit trusts, which means RSPs come with risks. They are also known as monthly investment plans.
With as low as $100, you can start a RSP to grow your investment portfolio gradually, with minimal effort.
Why minimal effort? A RSP taps on the concept of dollar-cost-averaging (DCA). With the same monthly investment amount, you buy more units of the same asset when prices are low, and less when prices are high. This helps to ensure that you continue to invest regularly, regardless of the market conditions. This also allows you to average out the price of the asset you are buying into.
#1 Diversification
ETFs are a great way to ease yourself into investing if you’re not confident in individual stock picking. With an ETF, you gain exposure to a basket of stocks, bonds or other asset classes depending on the ETF you invest in.
This helps to diversify your portfolio at a low cost. Diversification helps you to reduce your investment risk by not having all your eggs in one basket.
#2 High liquidity
ETFs are traded on the open market. This makes them highly liquid as investors can choose to buy and sell the ETF at any time. All that’s required for you to purchase an ETF is a brokerage account and your Central Depository (CDP) account.