Investing is a game of discipline: you have to be disciplined enough to not let your emotions get the best of you and you have to be disciplined enough to start early and continue regularly. – Warren Buffett
If you knew exactly when a stock is at its low and its high, you would undoubtedly make a ton of money. But as we highlighted in the previous post (Don’t try to time the market), we see the folly in trying to time the market.
Also, since the average person earns a monthly pay cheque, you most likely to be best served by an investment operation that requires you to put a fraction of you earnings into the market on a regular basis.
Based on the foregoing, in comes regular investing, to save the day.
Regular investing simply entails investing a fixed amount or fixed percentage of your income on a regular schedule, regardless of how high or low the market is.
This lowers the risk of investing at the most inopportune time and it also keeps you from missing buying opportunities at the bottom of the market. Thus, helping to smooth out the effects of fluctuations in the market. While this might hurt the returns you produce when compared with investing lump-sum (assuming the lump-sum was invested at the markets’ low), it helps to minimize losses that would result from buying at the peak.
It also helps you to develop a disciplined approach to investing, which would help you stay the course during bear markets, when the temptation is to stop investing.
Furthermore, since not many people would win a lottery or get any other form of large cash pay-out in their life-time, regular investing provides the average with a chance to also build a sizeable investment portfolio.
The best way to achieve this is to automate it, i.e. setup a direct debit from your account to your stockbroker or mutual fund provider.