If you want to invest in a SIP, you may have a significant question. When should you start investing? Some individuals start ultimately. But there are others who only think of it and take no action. Thus, even if you are the former or the latter, here is a simple story to help you know when you need to start investing in a SIP.
This is a story of four characters who start investing in a popular fund but at different times. Let us find out what fate brings for each of them.
What do they do?
So, Harry, Ron, Sid and Fred all decide to start investing. Just like any investor, each one has dreams to grow their wealth. However, each has a different approach to investment. While Harry starts investing as early as in the year 2007 on 1st January, Sid starts investing exactly a year after that (1st Jan 2008).
So why does Harry invest in 2007? He notices the market has been growing over the past 3-4 years and starts investing without any delay. Thus, Harry is the first one to start investing in a SIP among all four. Similarly, Sid too gets into the world of investments through SIP a year after Harry does. As a firm believer of the growing markets, Sid starts investing because he does not want to lose out any opportunity to create wealth in a growing market. So it is a known fact that markets fluctuate. Thus, both of their investments also go through market fluctuations in their investment journey.
Two years after Harry starts his SIP, Ron starts his SIP on 1st Jan 2009. In 2009, the market was at its peak in terms of the global recession. There is a market crash by 50% from its peak. So why does Ron invest during this period? Ron believes that a market fall is a right time to invest in to make more money. Ron was waiting to start investing in a time when the market is low otherwise he would have started before Harry.
Also read: Take a SIP to live your dreams
The last one to start investing is Fred. Fred has a different mindset. He is someone who wanted to invest a long time back but only waits because he wants a more stable market. He starts with his SIP on 1st January 2010, after waiting for the recession to get over.
So now we know that the first one to invest in a SIP is Harry followed by Sid, Ron and Fred respectively. An important question now arises. Harry and Sid were the ones to started investing early, but their investments went through market recession as well.
SIP investment results:
You must be wondering that due to recession Harry and Sid must be the ones to lose out in their investments. Harry and Sid were the ones to start investing early. Ron and Fred are the kinds of investors who time the market to start a SIP investment.
Is it shocking to know that Harry and Sid are at the winning end? There was a recession period too during their investments. But they still got higher returns. How? The answer is volatility. Yes, this much-dreaded enemy of investments is a friend. That is how Harry and Sid benefitted. SIP yields higher returns in the long-term in volatile markets. But how does volatility help? The answer is simple- stay invested. When you stay invested in the markets for long term volatility becomes your friend. This table shows the returns for each of them:
To put it solely for you, SIP benefits an investor even if there is volatility in the long run. The table above shows the proof that staying invested and being patient is the key to gain returns. What more? It makes you practice the discipline of saving.
So next time when you want to know when you should start investing in a SIP, remember these four investors. To invest in a SIP, you need to have a willingness rather than timing the market. Just remember to start early to achieve your investment goals.
So if you have still not started your SIP, head to a financial planner now and start investing.