Regular Savings Plans – The Profitable Discipline
Those who look for an investment in a patient long-term manner
reap the benefits of building an equity base.
Saving on a regular monthly basis from income is a popular way to plan for the future – be it for a future house purchase, school fees, retirement income or any other individual purpose. Any time is a good time to start a regular investment as the following article illustrates.
The problem is that people frequently invest in the market after it has begun to rise. Those who look at an investment in a patient long-term manner reap the benefits of building an equity base before the market moves. One of the most effective techniques used to build equity has been ‘dollar-cost-averaging’ into growth-oriented mutual funds.
Dollar-cost averaging (DCA) means that you invest the same amount at regular intervals regardless of the price of the shares in order to achieve a lower cost per share than the average price. Although nothing assures a profit or protects against loss in declining markets, DCA has been a proven technique for acquiring mutual fund shares. Given the ongoing commitment this investment strategy requires, you should consider your financial ability to continue making purchases through market declines before beginning a DCA program.
Let us take an example of investing money from the stock market crash in 1929 for 10 years, the so-called ‘depression years’. An individual who invested in the NY Dow Jones Industrial Average Index at its opening in 1929 and dollar-cost-averaged by investing $1000 at the beginning of each subsequent year would have actually netted a profit by the end of 1938. By contrast, investing $10,000 in 1929 for the same period, as a single lump sum, would have netted a 48.42% loss.
Through DCA, the regular invested annual amount would have netted $12,899.25 by 1938, while the lump sum input at the start, in 1929, would only be worth $5,158.15 by 1938.
There are many choices for investing into regular savings, and each scheme has its own particular set of advantages; it’s always a matter of weighing up one against another to ensure the choice matches the requirements.
The choice is made a lot easier once two preliminary questions have been settled.
*How much per month can you sensibly invest?
*For how long do you need to save?
If you haven’t answered these questions then you are probably in no position to talk to your broker, unless of course you have gone down another route and answered another question.
*How much do I need to save in order to achieve a certain lump sum by a specific date?
Start now and invest in saving.