Co-founder and CIO
Investing should never be stressful. In fact, starting an investing plan should be simple and in line with what you want to achieve financially. A monthly investment plan gives you the simplicity, tools, and discipline you need to work towards whatever it is that you ultimately want to achieve.
A monthly investment plan is a sustainable risk management strategy, because it allows you to use dollar-cost averaging to your advantage. Dollar-cost averaging is when you invest consistently, or average, into the market, rather than be vulnerable to the market conditions at the time at which you invest a large lump sum. The way this works is that when you invest monthly deposits throughout an extended period of time, sometimes you will be buying when the market is up, and other times when the market is down. This normal fluctuation in the market averages out if you invest throughout the year. How can you be sure it works? Look at long-term market trends. There certainly is short-term volatility, but in the long-term, the market always trends upwards, meaning, your long-term increase, too.
This logic can also be applied to investing a large lump sum of money. Investing a single large lump sum all at once is riskier because, as discussed, it leaves you exposed to whatever the market condition is at the time. Spreading out the large lump sum over a few months is a way to mitigate your risk while still investing a large amount of cash and allowing it to grow with interest and returns.
A monthly investment plan can encourage you to build sustainable habits that help ensure you reach your financial goals comfortably and on your terms. Implementing a monthly savings strategy may feel like a hassle at first if it forces you to make some adjustments to your day-to-day lifestyle. But, by spending less here and there, and therefore saving more, you can build the life you want later on, whether that is to retire earlier, or buy a bigger house. Ultimately, giving up that third cup of coffee each day in order to increase your monthly savings by RM100, or booking a 4-star hotel instead of that luxurious 5-stars for RM300 per night less may seem like a tough sacrifice in the moment, but ultimately, you are optimising your financial lifestyle and taking control of your future.
To see how minor adjustments in your lifestyle can pay off when you invest those savings, consider these examples:
By saving an additional RM100 each month and investing it in a portfolio that returns 5% net for 25 years, your wealth will be RM60,000 greater than if you didn’t start this savings plan (RM30,000 extra-savings, and RM30,000 of returns and compound interest from those savings).
Monthly investments of RM500 per month (or RM16 per day– the equivalent of a single taxi ride) will grow your additional wealth to RM300,000 greater at the end of 25 years.
Whether you put that additional value towards your general savings or towards any of life’s larger expenses, such as retirement or a new home is entirely up to you. And how good does it feel to have the flexibility to make that financial decision now?
If you haven’t already, start investing monthly deposits to reach one of your goals. Even if you don’t have a specific goal in mind, investing monthly will enable you to grow the value of your cash so that when there comes a time you are ready to make a big purchase, you’re ready.