Question:
Would you rather invest during a recession when share prices are beaten down or during the top of a bull market when share prices are getting over-valued?
Which do you think represents the greatest risk?
Buying at low prices (during a recession) or buying at high prices (during a bull run)?
A no-brainer right?
But many people are fearful of the market during a recession and prefer to sit it out and then rush in when the markets are red-hot by which time a correction or recession may just be around the corner. This is fear and greed in action and what you need to guard against to be a successful investor.
Are you afraid of investing a large lump sum into the markets for fear that prices may be cheaper tomorrow or that markets will still stay soft? Well, there is another relatively 'painless' way that we would like to share with you that you should seriously consider in putting your money to work at this time and that is a Regular Savings Plan.
A Regular Savings Plan (RSP) is a systematic way of investing your money, putting in a pre-determined amount at regular intervals. For example, $200 every month, or $1000 every quarter.
By starting an RSP, you can reap the benefits of Dollar Cost Averaging (DCA). DCA is a strategy which takes the guesswork out of trying to time the market by investing on a regular basis, despite how the market is doing. You will avoid the pitfalls of letting your emotions get involved, which could lead to costly mistakes.
As seen in the diagram above, you will end up buying more units when prices are low and fewer units when prices are higher. The result is a potential gain compared to investing the same amount all at once, and an average cost that is better than trying to time the market with your investments.
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