Question

Hi, can you answer this question in more detail?

Subject: Hong Kong Personal Financial Planning Practice

Q4. C

Monthly investment plan for stocks is getting more popular in Hong Kong. Analyze the characteristics, advantages and disadvantages of such investment plan with examples.

(Words: 600 - Don't direct copy)

Answer 1

Advantages of Monthly Stock Investment Plans-

• Dollar Cost Averaging (DCA): Each month when you contribute a fixed amount, the amount of shares you are able to afford will change. E.g. if the stock price increases, you will buy less of it. If the stock price decreases, you will buy more of it. This leads to lower volatility (aka your portfolio will move up and down less)!
• Forced to save each month: Your contributions to the monthly investment plan will be deducted from your account automatically each month so you’ll be forced to save!
• Less stress：Once you pick your stocks, you contribute automatically and there’s no ‘picking’ of stocks required after that. As long as you built a diversified portfolio, you should be good to go!
• Lower entrance fee：You can start investing with as little as $500 per month – although you may want to be careful of the fees!
• Credit card points：Some banks actually accept the monthly contribution via credit card (although at a slightly worse rate).

Monthly Stock Investment Plans have some very clear disadvantages: the fees can be quite high, your choice of stocks are limited and there’s no guidance whatsoever.