What Is Systematic Investing?
Thanks to the ease of electronic banking and fund transfers, you can build your retirement savings without even thinking about it. Each month—or each paycheck—money is taken out of your bank account and invested into your retirement account. That’s it. Your money literally invests itself. This method of investing is called systematic investing, and with it:
When you invest one lump sum of money at a time, you might wait for the right time to put your money into the market. But while you’re waiting, your money isn’t doing anything. And then when you finally put your money into the market all at once, you might invest during a market decline when your investment’s value could drop sharply. This might be more risk than you are comfortable taking.
Systematically investing allows you to take your lump sum and divide it into equal amounts over a year. The money gets invested at regular intervals over a longer period of time. So if the market drops right away, you suffer a smaller loss. Next time, you may be able to buy more shares at a lower price, depending on the market. Your investment buys a greater number of shares than if prices rise. Over time, this may reduce the average cost per share that you pay. This concept is called dollar cost averaging (DCA).
Like any investment strategy, however, both DCA and systematic investing have risks: