Regular investing is a straightforward idea. It’s all about making a habit of putting money aside consistently, whether that’s on a daily, weekly or monthly basis.

The best part? You don't have to worry about the markets going up or down. No need to guess or wait for the perfect moment to invest. You are slowly but surely investing in your future.

This routine makes investing less stressful and helps you stay focused on your long-term goals. Many people who gave regular investments a try notice over time that it really pays off. Regardless of market swings, consistency is what brings results and ensures you financial stability in the long run.

The following image shows a result of investing 50 euro monthly in Finax 100% stock portfolio since July 2018. It is one of the transparent accounts belonging to Dominik Hrbatý.

Past returns not are not a guarantee of future ones. Investing involves risk and may result in a loss. Learn about the risks of investing before you start.

What does regular investing mean?

The main topic of this blog is to take a closer look at averaging of investment cost (DCA: Dollar Cost Averaging). It is a simple, yet powerful strategy in investing because you invest in stocks or other securities on a periodic basis with the goal of accumulating your finances.

This approach is particularly beneficial for small retail investors because it allows you to:

• Invest over time: Even if you don’t have a large sum to invest, by regularly investing smaller amounts, you can accumulate significant wealth. This is especially beneficial for those who are just starting or can’t save a large sum. The key advantage is that you invest your money immediately after acquiring and setting it aside. By investing regularly, you can take advantage of market growth and compound interest, which leads to higher returns in the long run.
• Reduce the risk of market timing: Regular investing helps you avoid the stress of trying to time the market when buying or selling investments. We all know how tempting it can be to wait for the "perfect" moment to invest. However, the reality is that markets are unpredictable, and even experienced investors struggle to time their buys and sells correctly. By investing regularly, you naturally average out your purchase prices, reducing the risk of investing a large sum at the market's peak.
• Automate your investments: Automating your investments helps you avoid missing or stopping the continuous wealth-building process, which can jeopardize your goals. A common approach is to set up recurring orders that allow you to work towards your long-term goals without daily market monitoring. This approach ensures that you’re constantly buying. It’s like investing on autopilot – you’ll have one worry less and ensure that your money continues to work towards your long-term objectives.

One of the best things about investing regularly is that it helps you create healthy financial habits. It feels like setting aside a portion of your income every month, but without the pressure of having to find the perfect moment or wait for the "surplus money to appear." Instead, you build your financial future by automatic and regular investing, little by little, every month.

Do you know what's interesting? Around 45 % of Finax clients are already on the regular investing train, but we see huge room for improvement in this segment. Some opt for larger lump sum payments every few months, while others try to guess the best time to invest.

Attempts to "time" the market usually end in frustration, as many investors have already experienced. We all fantasize about buying when everything is cheap and selling at the peak, but the reality is different - no one rings the bell when the time is right.

Therefore, retail investors are in a better position in the long run compared to professionals. They don’t have to worry about what happens from week to week because they’ve already committed to a disciplined approach, also known as "set it and forget it."

This approach allows you to remain calm in the face of sudden market changes or sensational headlines in the media. Investing becomes more peaceful, and most importantly, you are building your financial security without constantly stressing over what's happening.

Why is regular investing so good? Because it spreads your investments over time. Sometimes you buy at higher prices, sometimes at lower prices, but when markets are down, you lower your average investment costs. When the market starts to rise, your perseverance pays off.

And what’s most important to me personally? Regular investing removes emotions from the entire equation. I’ve seen firsthand how fear or greed can ruin an investor’s plans.

Time is your best friend when investing. The more patient and consistent you are, the more likely you are to see your investments grow over time. Investing is a marathon, not a sprint, and the safest way to reach your goals is step by step.

To get a better picture of how regular investing works, let’s consider an example borrowed from Ecoinometrics. They compared the performance of different regular contributions, starting in 2012 and continuing until mid-2022, to the U.S. stock market index, S&P 500.

As we can see, all three strategies delivered fairly similar results, regardless of how often the investments were made. Whether you invest daily, weekly, or monthly, the outcomes are approximately the same. The only certainty is that attempts to time your purchases increase the risk of lower returns.

Source: Yahoo Finance, ecoinometrics.subtrack.com

Cons of regular investing

Averaging costs is an effective investment technique for individuals who don’t want to invest large sums of money all at once or simply don’t have them. Regular investing teaches people the necessary habit of saving a portion of their income and investing it. It creates a routine out of investing and helps maintain the required level of savings to secure one’s future.

However, regular investing may not be the best option for investors who have access to large amounts of money and who have longer investment horizons.

Studies show that if you have a significant sum of money available for investing, statistically, it's better to invest it all at once. An investment has a higher probability of increasing in value due to the time spent in the market.

Historically, stock markets tend to grow more often than they decline. For example, looking at the period from 1926 to 2014, stock markets recorded gains in approximately 73% of those years. This means that by spreading our investments across the entire year, we would likely only reduce our average purchase price in 27% of the years.

Lower Risk Fallacy

Let’s debunk a common misconception about the "lower risk" associated with regular investing. Spreading out an investment doesn’t reduce investment risk as much as people might think. This only happens in the event of a market downturn after you’ve started investing.

As we’ve shown, your money spends more time in the market with lump-sum investments. Only the invested money works for you. Since markets tend to rise more often than they fall, you have a higher probability of earning greater returns when investing the entire amount at once, rather than spreading it out.

During a bull market (a 20% increase), regular monthly investments can lead to increasingly higher purchase prices, resulting in missed opportunities for gains. This year, markets have reached many record levels. So, is lump-sum investing the right strategy today? We can’t say for sure—no one can predict whether the market will continue to rise or begin to decline in the coming months.

However, there are many studies that can help us understand how things have looked in the past. A recent Vanguard study analyzed the returns of the global MSCI index from 1976 to 2022. They found that lump-sum investing outperformed regular investing on a yearly basis 68% of the time, on average.

On the other hand, it’s worth noting that regular investing still performed better than holding cash, and this was true in 69% of the cases. This doesn’t mean that regular investing is a bad strategy that should be avoided. In the long run, it will yield excellent results, but statistically, lump-sum investing tends to appreciate wealth more effectively.

Source: Vanguard

Why invest regularly?

Because it's a much simpler way to invest, and it largely eliminates the risks that most often prevent people from achieving their financial goals. These risks typically include prematurely ending the investment, not sticking to the planned investment horizon, deviating from the investment strategy, speculation, and making frequent changes to investments.

Regular investing reduces the need for constant thinking and decision-making. The biggest obstacle to achieving the expected investment results is usually the investor themselves. Every decision increases the risk of mistakes and introduces unwanted emotions into the financial process. Just like with health, prevention is the most effective way to avoid problems in investing.

For these reasons, returns are not as critical as most investors think. It won’t matter if you earn 15% per year if you end your investment after just three years.

On the contrary, the most important factors for successfully building wealth are the savings rate, consistency, and adherence to the investment horizon. The significance of the savings rate is illustrated in the following table, which compares the results of investing at different savings rates (investing various portions of income) and varying returns.

To achieve financial independence or to build the desired wealth, the amounts invested have a greater impact. Regularly saving a portion of your income and investing it leads to an easier and more gradual increase in the savings rate.

Autopilot brings necessary discipline to your finances. With regular investing, you’ll forget about your investments more easily, intervene less often, and generally spend less time worrying about them. In the end, this approach will lead to better results over the long term.

When to start investing?

We often get caught up in the idea of timing the market, trying to "guess" the right moment and hoping that they will get the moment just right. Many people invest when the market seems attractive and hold back when uncertainty looms. However, the facts are clear – attempts to time the market rarely yield the desired results.

If you’re wondering when the right time to invest is, the answer is simple: RIGHT NOW! It doesn’t matter if you have a large sum or just a small amount – the most important thing is to start.

Modern technology now allows everyone to invest efficiently, diversely, and cheaply, starting with as little as 10 euros. Even small, consistent steps lead to significant results.

In the chart below, you can see the advantages of starting early and how much of a difference just a few years' delay can make. In the following example, we assume the investor is contributing 5,000 euros annually to an investment with an 8% annual return.

From the graph, you can see that if you start at age 25, by the time you’re 65 (with a 40-year horizon), you could have 1.3 million euros. This graph perfectly illustrates Darren Hardy’s quote: "The compound interest effect is the principle of reaping enormous rewards from a series of small, smart decisions."

Source: CharlieBilello, Creative Planning

Once you understand the value of investing, the next step is to make it a habit, just like brushing your teeth. By regularly setting aside even a small portion of your income, you’re actively building your financial security.

I know these decisions can seem difficult, but automation can make the whole process easier. Once you have a plan in place, you won’t need to think about each step, and your investments will tirelessly work for you. Small, consistent steps today lead to financial freedom in the future.