The Hindu Business Line : Systematic approach pays

Most of us are familiar with the basic investment tenet that you should buy stocks when the market is down, and hold off when it is up and swinging. Simple as it sounds, this rule is quite difficult to follow! Some of the worst investment decisions happen when investments are churned frenetically in an attempt to buy (or sell) at the right time.

Is there any way out of avoiding making such mistakes? Certainly. All you need to do is bring in an element of discipline in investing. Wondering how you can achieve this? By adopting a systematic investing approach. This involves investing through equal instalments spread evenly over time. Such a style offers you a lot of benefits.

First, it is light on your wallet. You can get started by setting aside a mere Rs 500 every month and keeping your investments going.

Second, it takes care of the principal problem related to timing of investments. It helps you stay in the market through its ups and downs, without making any conscious attempt to time your purchases.

That is because when you invest the same sum of rupees, say Rs 1,000, every month in the stock market through the years, you automatically buy more shares (or units of a fund) when the market is low, and less when the market is buoyant. This is exactly as it should be. Systematic investing also ensures financial security over the long term and helps you build wealth.

As the saying goes, ``little drops of water make a mighty ocean,'' such is the impact of systematic investing.

If you thought that getting rich is a Herculean task, think again. The power of compounding, coupled with investing from an early age, makes your wallet fatter! Say, for example, you begin investing Rs 1,000 every month at 25 for 30 years.

Assuming a 10 per cent annual return, your investments of Rs 3,60,000 would have grown by over six times to Rs 22 lakh! Sounds simple, but is true. This is the power of compounding, which can help build your future and guard against financial insecurity.

Being an early bird also stands to your advantage. Consider this: At 25, you start investing Rs 10,000 every year for five years. Your friend, who believes in ``live for today'' and spends heavily on latest gizmos and lifestyle items, begins investing a similar sum at 40.

On retirement at 60, while your friend would take home a sum of Rs 6.3 lakh, you would see yourself walking away happily to the bank with a corpus of Rs 11.7 lakh (this is based on an assumption of 10 per cent annual returns), making you almost twice as rich as your friend.

Still thinking? Don't, it's time to get started.

Please send suggestions and queries to younginvestor@thehindu.co.in, or The Research Bureau, The Hindu Business Line, 859-860, Anna Salai, Chennai-600002.