Life has been more turbulent than usual in the past decade, with war, famine, and the pandemic tearing through the world. During times of uncertainty, financial markets have been impacted substantially, and as the crypto bubble begins to burst with hundreds of billions of dollars disappearing overnight, many are returning to the good old regular savings plan.
What is a regular savings plan?
A regular savings plan is a kind of investment plan that requires the investor to, instead of paying out a lump sum to purchase an asset, regularly pay out small amounts of money. Each month, investors will contribute $50 or $100 (or more) to purchase a fund, trust, or an equity, and the primary goal of a plan like this is to build wealth over time.
Regular savings plans use the logic of Dollar-Cost Averaging (DCA), an investment method that focuses on riding out short-periods of volatility in financial markets by focusing on the long-term upward trend of the price of an asset.
Who has regular savings plans?
Almost anyone has regular savings plans these days, and it is not hard to see why.
- Beginner investors
Beginner investors tend to have regular savings plans because these plans do not require large amounts of capital to fund. A regular $50 or $100 can go a long way, and there is no pressure to keep an eye on the markets all the time because investors are focused on long-term gains over short-term ones. There is also a certain level of stability afforded by a regular savings plan, making it supremely attractive to beginner traders.
- The risk-averse
The risk-averse also tend to have regular savings plan if they want to invest. This is because they offer a perfect level of risk for those with a limited risk appetite, and portfolios can be toggled individually to match each investor’s comfort level.
- Those looking to diversify their investment portfolios
Many people may believe that traditional traders may not have a regular savings plan because they are more focused on making quick gains. However, you will find that many of these traders are financially sound, and though they have the technical expertise to make quick profits from trading volatile markets such as stock or crypto, they are more likely than not to also have a regular savings plan for long-term capital perseverance as they know better than to put all their money in unstable markets.
- Investors uninterested in keeping up with the markets
Regular savings plans hinge on Dollar-Cost Averaging, an investment strategy that does not require much attention paid to keeping up with markets. Instead, investors are welcome to contribute money at a steady pace regardless of market performance. This makes regular savings plans appealing to investors who want to participate and grow their wealth but do not have the time, patience, or expertise to keep up with short-term market trends.
Benefits of having a regular savings plan
So, why should you have a savings plan? Below are some benefits outlined for you to consider:
- Potential for capital growth
One of the main benefits is the potential for capital growth. Even though it is a long journey, it is one that is well worth it. With compound interest and regular pay-ins from you, your cash could snowball.
- Money within your savings plan are tax-exempt
Money that is saved in your account is exempt from tax, and therefore, when you contribute a significant amount each month, you are actually saving in this way too. When you are ready to withdraw your funds after years after retirement, they will not only have grown to a sizeable amount, but you will also be paying less in taxes on them due to the fact that you will be in a lower income bracket.
- Encourages discipline
Having a regular savings plan also encourages discipline. For those who have a hard time holding on to their cash or always find themselves incurring losses on the stock market, having a regular savings plan can be a welcome change. As you have to make a monthly contribution, you will think twice before spending your cash frivolously.
Get started with building your wealth
If you are ready to get started with long-term wealth growth and perseverance, visit https://www.home.saxo/en-sg/products/regular-savings-plan for more information on how you can open an account.