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Monthly investing
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Why to invest monthly

Daniel Trum
by: Daniel Trum5 min read

The goal of investing monthly is to reduce your risk over time. In order to benefit from cheaper prices you need to keep investing also when markets go down.

You probably get your salary monthly, so why should you not invest monthly as well? Like getting your salary in regular intervals, investing monthly takes away stress from you and gives you a better long-term outcome. There are two main reasons why:

Time in the market beats timing the market!

Firstly, as we showed in a previous comment (see here), it is best to invest new money immediately, so that you maximize the time it can work for you in the financial markets. This may feel counterintuitive sometimes, like when markets are “clearly” going down like earlier this year. 

However, remember that Selma thinks it’s a waste of time and brainpower trying to predict markets: the chances you succeed over the long term are nil, and markets can turn around much faster than you can say “quarterly earnings”. 🧠 Monthly investing gives you the opportunity to benefit from phases of lower prices. 

Spread your risk across funds and across time!

Secondly, investing monthly gives you the opportunity to do “cost averaging”. This is like the old adage of “not putting all your eggs in one basket”. Like spreading your investments as broadly as possible across various funds, you can also spread your investments across time.

Never again will you suffer from FOMO (“Fear Of Missing Out”) or hesitancy to invest in turbulent markets. Instead, you trust that you get fair entry prices on average. This will save you from the horrors of investing a larger amount at once at just the wrong time. 

The comparison speaks for itself

Let’s illustrate with an example the difference it can make to invest monthly (also with Selma). To keep things simple, let’s assume you have three choices: 

  1. Invest monthly
  2. Invest once a year
  3. Invest once every 3 years

Note: The example compares investing 500 CHF per month against 6’000 CHF per year and 18’000 CHF every 3 years, starting November 2012 until November 2021. Including the minimum initial investment of 2'000 CHF, this amounts to total investments of 56’000 CHF over 9 years for all three cases. The portfolio consists of 2 ETFs, 70% are invested into BlackRock iShares Core MSCI World UCITS ETF USD (Acc) and 30% into Xtrackers II Global Government Bond UCITS ETF 4C - CHF Hedged.

Gains after investing regularly

As you can see, the more often you regularly invest, the better is the performance. The risk of entering the market at a particularly bad time will also be lower. In our example, monthly investing boosted the average annual return by 0.6 percentage points, which is roughly the amount of annual management fees you are likely paying with Selma or other providers. 🤓

Monthly investing makes other things easier

Your portfolio also needs to be rebalanced from time to time. Furthermore, Selma adjusts your portfolio strategy regularly to invest more into markets that are especially attractively valued.

Both these things can be done easier when you invest monthly, because the new cash deposit is then available to make these adjustments. Without monthly investments, it can happen that some little parts of your investments have to be sold to get your whole strategy aligned again with your long-term plan. This can be a bit more costly and perform slightly worse over the long term.

About the author
Daniel Trum

Daniel Trum

Daniel is an economist (MSc) and financial analyst with over 10 years experience in the Swiss banking industry. He leads the investment management at Selma and he’s passionate about finding better ways to invest for everybody. Follow him on LinkedIn to get regular updates on what he thinks about financial markets.