Unlike stock, crypto, and forex trading which are becoming more and more mainstream among millennials and Gen Z, there is still a gap in most of young people’s knowledge about regular savings plan.
If you are one of these people who have always heard your parents urge you to open a savings plan instead of a trading account, you may have gone online to look them up and do your own research. However, the Internet is full of misinformation, and in this article, we will dissect some of the most prominent myths surrounding regular savings plan and bust them.
What is a regular savings plan?
To begin with, it’s important to know what a regular savings plan is. It is a plan that allows you to put away a set amount of money monthly to invest in funds, trusts, or stocks, and the way you profit from your investment is by a method called dollar-cost averaging. This method allows you to ride the waves of volatile financial markets and benefit from an overall upward growth trend in the long-term.
5 myths of regular savings plans busted
Below are 5 myths about regular savings plans that do not carry any weight.
- Regular savings plans are only for the risk-averse
Many, when hearing the words ‘regular savings plan’, will conjure an image of a strait-laced investor who does not like to take risks and instead prefers to grow his capital in a horrendously slow way, one monthly contribution at a time. To many,
- Regular savings plans requires a large amount of capital
Others believe that regular savings plans are only for the rich or those with a lot of money to spare. While it is true to an extent that those living from pay-check to pay-check may find it more difficult to make monthly contributions, these days, banks and other financial institutions have made these plans as accessible as possible by lowering monthly contribution amounts.
You can contribute as little as $50 a month and still grow your wealth. You are free to contribute more depending on your capabilities, but it is absolutely not true that savings plans are only for the wealthy.
- Regular savings plans are not strategic
Many like the thrill of trading stocks, crypto, and forex because of the skills and strategies it demands from traders. Profiting from financial markets feel extra sweet when you know you’ve put in the work and done your analysis. However, regular savings plans can be just as strategic and can also test your discipline and skill equally.
For instance, to make the most out of your plan, it requires research into the different types of portfolios, funds, and trusts. To determine which plan is best for you, you also have to understand what each one is about. Finally, you have to strategically evaluate how much you want to contribute each month. As money within regular savings plans are exempt from tax, you could also take the opportunity to work out whichever suits you best.
- Regular savers do not trade
When you picture a person with a regular savings plan and a trader, you may be picturing two very different people. One who is stereotypically ‘conscientious’ and afraid of taking risks, and the other who enjoys the thrill of risk-taking. However, these stereotypes are just stereotypes, and the truth is, many investors these days participate in both saving and trading.
This is a sound way of managing your money, because by mixing both high and low risk endeavours, you can give yourself a sense of safety and cushion your capital from huge losses.
- Regular savings plans do not offer growth potential
Finally, many may imagine that regular savings plans do not offer much growth potential for their capital. While it is true that growth of your capital will not be as immediate as other forms of investment as this is a long journey, it is not true at all investors get little to nothing out of these plans.
Over time, with steady progress, your capital could very well accumulate. Many plans also provide compound interest. If you invest $100 a month with an average return of 4% per annum, 20 years down the road, you will see $24,000 invested snowball into $36,000. If you decide to invest in more aggressive plans, return rates could be much higher.
How to get started with regular savings plans
The best way to get started is to do your research on the best savings plans for Singaporeans and go from there. Saxo Bank offers a comprehensive plan with one of the lowest prices across the board.