Share Builders Plan: Harness the Power of Dollar-Cost Averaging August 12, 2024
The Share Builders Plan (SBP) offered by POEMS (Phillip Securities Pte Ltd) is a regular fixed-dollar amount investment plan that enables investors to buy shares and ETFs consistently and incrementally. This plan is designed to help investors build a portfolio of securities and/or ETFs over the long term without the need for a large initial capital outlay.
How It Works
- Investment Method: SBP employs the dollar-cost averaging (DCA) method, where a fixed amount of money is invested regularly, regardless of the share price. This strategy is beneficial in buying more shares when prices are low and fewer shares when prices are high, potentially lowering the average cost of shares over time.
- Minimum Investment: The minimum investment amount is S$100 per month, and investors can choose the specific stocks they want to invest in from the available counters.
- Transaction Date: Shares are purchased on the 18th of each month or the next available market day if the 18th is a non-market day.
- Handling Fees: Fees are calculated based on the Total Portfolio Value (TPV) and are deducted monthly. For example, a portfolio value of S$1,000 incurs a handling fee of S$1 per month.
Pros of SBP
- Disciplined Investment Approach: By investing a fixed amount regularly, investors can avoid the pitfalls of trying to time the market and benefit from the dollar-cost averaging method.
- Low Initial Capital Requirement: With a minimum investment of just S$100 per month, SBP makes it accessible for investors with limited funds to start building a portfolio.
- Convenience: The plan is automated, making it easy for investors to maintain a consistent investment strategy without needing to actively manage their investments.
- Diversification: Investors can choose from a variety of SGX-listed stocks/ETFs/ REITs, allowing them to diversify their investment portfolio.
Cons of SBP
- Limited Control Over Purchase Timing: Since the shares are purchased on a fixed date each month, investors have no control over the exact timing of their investments, which may not always align with market conditions.
- Fees: While the handling fees are relatively low, they can add up over time, especially for smaller portfolios.
- Market Risk: Like all equity investments, SBP is subject to market risks. The value of the investments can fluctuate based on market conditions.
Why Should Investors Use SBP?
- Long-Term Growth: SBP is ideal for investors looking to build a portfolio over the long term without needing to make large lump-sum investments.
- Simplicity and Automation: The plan simplifies the investment process by automating monthly investments, making it suitable for those who prefer a hands-off approach.
- Cost Averaging: The dollar-cost averaging method helps mitigate the impact of market volatility, potentially lowering the average cost of shares over time.
- Accessibility: With a low minimum investment requirement, SBP is accessible to a wide range of investors, including those with limited capital.
Importance of Diversification Through ETFs
- Risk Reduction: Diversification helps spread risk across various assets, reducing the impact of poor performance from any single investment.
- Lower Volatility: ETFs, which often hold a wide array of stocks or bonds, provide the benefits of diversification, including lower risk and less volatility, making them safer to own than individual stocks.
- Broad Exposure: ETFs allow investors to gain exposure to a broad market segment or specific sectors without needing to buy individual stocks, which can be more costly and complex to manage.
Usefulness of Dollar-Cost Averaging (DCA)
- Reduces Emotional Investing: DCA takes the emotional component out of investment decisions by automating regular investments, helping to prevent poor decisions based on market fluctuations.
- Mitigates Market Timing Risk: By investing consistently over time, DCA minimises the risk of investing a large sum at an inopportune time, thus reducing the impact of market volatility.
- Disciplined Savings: DCA promotes a disciplined saving and investing habit, making it easier for investors to build their portfolios steadily over time.
Core-Satellite Strategy with SBP
- Core Investments: Use ETFs as the core of your portfolio to provide broad market exposure and diversification. This passive investment approach can help minimise costs and volatility.
- Satellite Investments: Complement the core with individual stocks as satellites. Using SBP, investors can add high-priced counters like DBS regularly, like fractional shares, allowing for incremental ownership of expensive stocks.
- Balanced Portfolio: This strategy combines the stability and diversification of ETFs with the potential for higher returns from selected individual stocks, providing a balanced approach to portfolio management.
Examples of Core-Satellite ETFs
- Core ETFs: Broad-based ETFS
o ES3/G3B (STI ETF): A well-diversified ETF comprising large-cap and highly liquid companies listed on the SGX.
o MCN (Onshore China): Includes 50 leaders across 11 sectors within Onshore China aligning well with national directives and providing an added layer of operational and economic stability.
o JJJ (Japan Active ETF): Fund managers leverage the expertise of in-house professionals and AI screening criteria to rebalance and optimize this portfolio.
o A35 (ABF Bond): Focuses primarily on Singapore government and quasi-sovereign entities, typically AAA-rated, reflecting high credit quality and a low risk of default. - Satellite ETFs: Specific-themed ETFS
o LCS (Low Carbon): Targets ESG-conscious companies, which often uphold higher management standards that may translate to better performance.
o CLR (Singapore REITs): REITs are required to distribute at least 90% of their taxable income, providing investors with long-term passive income.
o HST (Hang Seng Tech): Features tech companies that are high-growth giants and tend to perform well in positive market conditions, apart from MCN and YYY.
o OVQ (SG High Dividend): Focuses on high-dividend-yielding companies.
o MBH (Non-Sovereign Large Cap Bond): Includes less accessible entities like Temasek, NTUC Income Insurance, HDB, NEA, LTA, etc..
Sources: https://www.poems.com.sg/docs/SBP-Infosheet.pdf
In summary, the Share Builders Plan from POEMS provides a disciplined and accessible method for investors to build a diversified portfolio over time. By leveraging the benefits of dollar-cost averaging and integrating ETFs for diversification through a core-satellite strategy, investors can achieve a balanced and potentially more rewarding investment approach.
Frequently Asked Questions
- What is dollar-cost-averaging method of investment?
- How do I apply for Share Builders Plan (SBP)?
- Can I apply for SBP through POEMS online?
- Who is eligible to apply for SBP?
- Can I e-Sign the GIRO Form or submit a softcopy instead?
- What supporting documents should I prepare for application for Junior Share Builders Plan?
- What is the minimum amount that I have to invest?
- Can I choose the shares that I want to invest in?
- What are the counters available?
- Can I use CPF or SRS for SBP?
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About the author
MuMing Yong
ETF Specialist
Phillip Securities Pte Ltd
Mu Ming traded and invested for more than 8 years in various instruments including ETFs, Equities, Unit Trusts, Options, DLC, CFD, and ILP from the US, SG and HK market. He's a believer of personal finance, macroeconomics, and, technical analysis - so much so that he found himself analysing his social media engagement using trend lines and patterns.
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