When you invest in the markets, you can either make a one-time investment or you could make continual, systematic investments. The continual, systematic investments don’t have to be large as even small investments over time can make a substantial impact in your long-term financial success.
Here is an example. Assume you decide to start investing at age 25 with an initial sum of ₹1,000. In one situation, you let this money grow at 12% for 40 years. In another situation, you do the same thing except you also invest ₹100 per year. The illustration below shows the difference in ending value between investing once vs. continuing to invest. Over 40 years in the second situation, you invest an additional ₹4,000. The difference in ending values is ₹93,000 vs. ₹165,000; this additional ₹4,000 over 40 years would provide you an additional wealth of ₹72,000.
Another benefit of systematic investment is dollar cost averaging. A common worry of new investors is buying a stock or fund only to see the market drop shortly thereafter. Dollar cost averaging helps to reduce the worry by investing a fixed amount of money at regular intervals, you spread out your purchases and avoid the risk of investing at the wrong time. If the markets are down when you make your systematic investment, you will be able to buy more shares. When the markets are up, your previously purchased shares will have gained in value but your next systematic investment will result in fewer shares purchased because of the higher stock price.
While systematic investing and dollar cost averaging aren’t a guaranteed way to avoid losses, they encourage a long-term perspective in saving for your future.