155 Regular Savings Plan 1.0 (RSP 1.0)

155 Regular Savings Plan 1.0 (RSP 1.0)

Regular Savings Plan 1.0 (RSP 1.0) is a term I coined myself to differentiate the different types of RSP I learned and trying to adapt into practice. This means I already coined another two terms RSP 1.5 and RSP 2.0.

Today I am noting down what is RSP 1.0.

In short, RSP 1.0 is the strategy of Dollar Cost Averaging we have been practicing in unit trust investment all the while.

In basic, it is a periodic deduction of investment amount from investor's bank account into unit trust funds. The process is automated, the amount is fixed, the date is fixed.

RSP 1.0 has been proven to worked for long-term investment strategy, provided investor selects the correct funds.

RSP 1.0 works by accumulating more units during down market and accumulating lesser units up market. The chance to buy more during low price allow investor to lower down his investment costs.

I have tried to do a simulation using RSP 1.0 and RSP 2.0.

After 10 years, RSP 1.0 has higher investment amount but with higher fluctuations. On the other hand, RSP 2.0 has slightly lower amount with lower fluctuations.

Both RSP 1.0 and RSP 2.0 easily beats my expected rate of return of 9%.

When an investor's investment capital becomes very big (e.g. more than RM100k), a slight fluctuations in fund price will see a big fluctuations in ringgit value. E.g. a 1% price drop means a investor's floating amount reduced by RM1,000 for every RM100k. Vice versa.

During market correction, a drop of 10% is not unusual at all.

Investor's feeling will be very emotional during big market correction like in Mar 2020.

To lesser the impact of investment value reduction, moving to RSP 1.5 and RSP 2.0 is worth considering. I will explain RSP 1.5 and RSP 2.0 in later article.

In Phillip Mutual, monthly deduction lesser than RM2,000, can only practice RSP 1.0 and RSP 1.5.

Like in many fund house, process in RSP 1.0 is automatically running. To practice RSP 1.5 and RSP 2.0, the process is unfortunately very manual because there is no such system, and requires a very cost-efficient platform.