SIP vs. lump sum: what should I choose?
Lumpsum investments are easy to do if you know what you feel about it, not how markets move.
Lumpsum investments are easy to do if you know what you feel about it, not how markets move.
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch
A typical version of this question is which is better:
There is enough evidence that timing the market is very hard for the average retail investor. Therefore investing every month (or as per money received as income) will be perfectly fine for most people. Since most investors earn salaries monthly, it makes sense for them to match the frequency of income with their investments, so SIP exists. There is nothing special about SIP. This post shows that only starting a SIP will not lead to meeting a goal.
This post deals with a different version of the same problem:
A fairly common question among investors is that “I have x lakhs of rupees” - how do I invest it in equity markets (and their fears with each option)
There is a lot of research that shows there is little impact of short-term market movement on the long-term performance of the portfolio. Timing the market is difficult to achieve for many people. Also, waiting for the right moment to invest is risky since markets may move suddenly, leading to many regrets.
Another thing to keep in mind is that once your portfolio grows, the impact of a single investment (either lumpsum or SIP) will gradually reduce with time. A portfolio allocated as 60:40 equity to debt allocation may easily move more than 1% on most of the days in a month. You can this way easily invest 1% of the portfolio value in a week and not think too much of it.
Related:
How to invest a lump sum amount when the stock market is at an all-time high?
Via one simple plan, we will
Throw a (fair) die to find “n” - the number of investments you are making. Use a real dice or there are many online.
If you do not like the first result, you can always do a best of three.
So, if ten lakhs is the investment amount and “n” comes to 4 as per the dice, then for the next four months, invest 2.5 lakhs each month.
This will be as per
The full process is explained in this detailed post and here: How to invest a lump sum amount for your goals?.
But before deploying this lumpsum, first, check if you are ready to start investments.
This article discusses how to plan early retirement in the face of lifestyle inflation and lack of health insurance for an investor in their 40s.
Published: 8 December 2024
7 MIN READ
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This post titled SIP vs. lump sum: what should I choose? first appeared on 25 Apr 2021 at https://arthgyaan.com