Discipline and Regularity leads to a stable Growth of wealth

Let us try and understand what constitutes Regularity and Discipline in Investments. It will more easily be understood when seen from the point of an investor who lacks huge lump sum for investment. The simple reason for this is that, contrary to investing huge lump sums, setting aside small sums of money at regular intervals is a more organised way of investing. 

When you have a lump sum in your hand, you would most obviously like to invest it for further growth. However with the investment climate and market scenario turning its face towards uncertainty, it is a tough task to time the market (For buying low and selling high) and pick up suitable avenues for investing the lump sum. This would entail a huge risk even if it is debt instrument due to inflation eating up into your investment growth. 

A very stable and moderately conservative approach would be to invest small amounts of money that is left out after meeting the running expenses of a household from the monthly income. A fixed amount invested every period (monthly/quarterly etc) will eliminate the drawbacks involved in lump sum investments. Good timing of market is nothing but a coincidence. It may be relevant to a trader who is willing to take the risk of financial insecurity and is speculating rather than investing. But for the individuals who are investing money for personal financial security, it would be wise not to follow the footsteps of such speculators.

Illustration : if there are two options – to invest ` 60000 as a lump sum annually OR to invest ` 5000 monthly totalling to ` 60000 in an year. Let us assume the price of a Stock X to be ` 25 at the beginning of the year. Lumpsum investment will give 60000/25 units = 2400 units. After an year, the value may be less or more than 25. If the value is more than 25 then the investor stands to gain and if the value is less than 25 he would lose on his investments. In the second option, since the investor in making equal and regular small investment of ` 5000, he would obtain varying number of units every month depending on the increase or decrease in price of the Stock X. If the price of stock X increases, the investor would receive lesser number of units and if the price of the stock decreases, the investor would receive more number of units.

This variability in number of units held by the investor depending on the increase or decrease in stock prices will render market timing redundant thereby eliminating to an extent the risks involved due to fluctuating market prices! So keep away from timing the market. Invest regularly and stick to the discipline – this will definately reap decent growth in your investments!