Key Takeaways
- A regular savings plan allows you to build wealth over time through consistent, automated investing.
- Minimum monthly investments typically start from $100, making it accessible for many investors.
- Dollar cost averaging helps reduce the risk of market timing.
- Reinvesting distributions can significantly enhance long-term returns through compound growth.
- Regular savings plans are flexible and can be adjusted as your financial circumstances change.
What Is a Regular Savings Plan?
A regular savings plan is an arrangement you can create with (generally) a fund manager to invest an initial lump sum followed by regular investment installments; the most common installment period being monthly.
Minimum monthly investments usually start at $100. You can nominate your own amount above this according to your cashflow and what you can afford to save.
The regular payments can be deducted from a nominated bank account. This monthly payment is then invested on your behalf by the fund manager in the same manner as the initial investment, which might be in shares or bonds for example, depending on the fund you have chosen.
When you invest in a managed fund, you own 'units' in the fund. The value of the units in the fund will rise and fall with the value of the underlying assets it owns.
Investors looking to build wealth steadily may benefit from professional guidance through wealth management advice.
How Much Do You Need to Start?
You can start a regular savings plan with a fund manager with as little as $1,000. This will enable you to start growing your wealth and start saving for a long-term goal, such as:
- a deposit for a home, or home renovations
- future holiday
- children's or grandchildren's education
Benefits of Regular Savings Plans
Regular savings plans enable you to invest your surplus income at a flexible level while allowing you to access your funds if required. Other benefits include:
Easy Investment Plan – direct debit from your bank account each month. Ensures a "forced saving" regime for your surplus cash.
Reduced Investment Cost – via 'dollar cost averaging'. By implementing a regular savings plan you gain the benefit of purchasing investment units at different prices which helps reduce the risk of mistiming the market. Your regular investment purchases less units when prices are high and more units when prices are low. By averaging the unit price paid, your investment cost is reduced. This is 'dollar cost averaging' and means that you don’t have to worry about where share prices or interest rates are headed.
Compound Interest Multiplier – by re-investing your distributions rather than taking the cash, your investment capital benefits from the effect of compound growth; which means, the distribution from your investment also earns interest.
Tax Benefits – when a regular savings plan is invested via a specific education savings bond, tax benefits can be enhanced further for education-related expenses.
Flexibility – flexible access to your funds with the ability to vary or suspend contributions.
Understanding how regular contributions fit into a broader investment strategy can help maximise long-term outcomes.
How Much Do You Need to Invest Each Month to Reach Your Target?
Below is a an example of the savings targets you would reach over a set period of time, based on the amount you contribute per month (calculated using an average return of 6.5% per annum).
Choosing a Managed Fund
There are thousands of managed funds to choose from. It's important to understand the different types of funds, the risks and returns, so you can choose a fund that meets your needs.
Morgan's advisers are qualified to help you choose an investment fund that’s right for you and put in place an appropriate savings plan to help you achieve your financial goals.
Take the first step toward building long-term wealth, contact your nearest Morgans office for an obligation-free discussion with a Morgans adviser.
FAQs
What is a regular savings plan?
A regular savings plan allows you to invest a fixed amount at regular intervals, typically monthly, into a managed fund or investment portfolio.
How much do I need to start a regular savings plan?
Most plans can be started with an initial investment of around $1,000 and ongoing monthly contributions from as little as $100.
What is dollar cost averaging?
Dollar cost averaging involves investing regularly over time, helping reduce the risk of investing a large amount at the wrong time in the market.
Can I change or stop my regular savings contributions?
Yes, regular savings plans are flexible and generally allow you to vary, pause, or stop contributions if your circumstances change.
Are regular savings plans suitable for long-term goals?
Yes, they are commonly used to save for long-term objectives such as retirement, education costs, or major purchases.
