Most people would find the title of this article a little daft. Why would regular savers want investments to go down? If the graph below represented the performance of an investment, which would you choose to invest into regularly?
Most people would say A.
You should have chosen ‘C’
Would it surprise you to know that regularly investing into B or C would earn you more than A? So many people think that an investment has to grow higher and higher to have any real growth. Take for example the FTSE 100. It has been everywhere and nowhere in the past 20 years. So why would anyone invest in a FTSE Index Fund?
REGULAR VS LUMP
The strategy used with investing on a regular basis is vastly different to investing in one big cash lump. With a large amount of Capital you’d need the investment to go just one way….. up! Regularly Saving takes advantage of Dollar Cost Averaging giving a higher overall value of your units.
Imagine a Farmer sells apples for $1 each. How many apples can you buy with $100’s? 100 of course. If the price of the Apples is reduced to 89 cents. How many can you buy with that same $100’s? The answer is 112 apples. When you go to sell your apples back to the Fund, you’d get that day’s value for all your apples regardless of how much you paid for each individual apple.
So obviously you’d want to have bought as many apples as possible during that time. With this knowledge I struggle to see why people are hesitant to invest during a market crash or times of uncertainty. For regular savers, the sale is on!
Smart regular savers don’t mind whether the markets are doing well or bad. They keep saving regardless with the knowledge that it is a ‘win win’ situation for them in any condition.
Either your UNITS are worth more in a growing market, or you are buying a whole lot of discounted units which will be worth much more in later years.
The worst thing you could do is stop investing on a regular basis when markets and economy’s are volatile and uncertain.
Just like a surfer, you want the waves to come, as riding the waves is the best and most profitable way to do it.
