SALLY Wong, senior executive manager of the Hong Kong Investments Funds Association, recommends using savings plans for investment funds. 'There is no need to time the market and worry about the ups and downs of market movement,' she said. 'Through dollar-cost averaging, a savings plan helps you to smooth out possible price fluctuations by enabling you to buy more units when the price is low; and fewer units when the price is high.' In many instances, dollar-cost averaging clients who invest regularly have the edge over investors who pull their money out when the market falls then jump back in when it goes back up, thus missing the best investment opportunities. By investing set amounts regularly, extremes of share prices are avoided. As a result, the average cost of all your shares is lower than the average price of your shares. However, while dollar-cost averaging has definite advantages, it cannot assure a profit or protect against a loss in declining markets. 'An ever-rising market does not exist. However, most markets move in an upward fashion over a reasonably long period of time,' Ms Wong said. Possible candidates for the types of savings plans are those wishing to save and ensure the value of savings meets their longer term goals. To accumulate an asset base large enough for comfortable retirement, most company-sponsored schemes can only replace a small proportion of pre-retirement income - so a savings plan is an advantage. Tuition fees at respectable international universities are rising at rates much higher than the average inflation of those countries. Appropriate provision through a savings plan is, therefore, an advantage. There is also considerable flexibility in using these savings plans. Usually customers can choose at any one time to vary the amount of investments - which may mean topping up if one has surplus cash or reducing amounts - subject to the minimum required. These plans also allow investments to be suspended temporarily, or the plan to be terminated. However, there may be individual fund houses which will levy an early termination charge for investments of less than one or two years. Savings plans have many advantages over a basic lump sum investment. For example, the minimum investment for a savings plan is usually low - between $1,000 and $2,000. But a lump sum investor has to invest at least $10,000 or, at the higher range, $20,000. Some fund houses allow a pre-selected choice of plans, while others provide the whole range. With lump sum investment, the full range of fund products is generally on offer. Both savings plans and lump sum investments require a front-end annual management fee and some fund houses may offer discounts on switching for savings plans. For the savings plan, an initial lump sum is required then payments are usually by direct debit. Portfolio performance can be tracked by fund price quotations in newspapers, monthly and quarterly statements and fund houses showing account accumulation.
