In January 2008, the Nifty peaked at 6,357 after suffering a freefall from there, it recovered to 6338 by November 2010.
From there on, the Nifty50 remained range bound till December 2013 when it picked up pace and finally crossed 6400 in March 2014. Then, the Nifty galloped beyond 9000 in March 2015.
Now imagine if one had invested his entire investment capital in Nifty in January 2008. That investor would have had to wait till March 2014 to just break even.
Earlier in the article, we saw how investing in the index at the peak could mean waiting for a long time to break even. Now, let us observe something similar with the share price of a company.
Let us consider a scenario where one had invested Rs 1 lakh in
On 17th August 2022, the share price of Asian Paints was Rs 3545 and hence the value of the investor’s corpus would be around Rs 1,03,018. This a profit of barely 3%.
Let us consider another scenario where one purchases 5 shares of Asian Paints on the first day of every month (when the market is open) between January 2022 and August 2022.
So, if one had purchased shares of Asian Paints in a staggered manner, one could have averaged one’s buying price and thus be enjoying decent returns of almost 13% by August 2022.
To summarize, a staggered approach of buying shares offered returns of 13% over 8 months as compared to returns of 3% by investing at one go.
It may not be wise, even for seasoned investors, to invest a large amount at one go. This would mean making a large financial commitment that could also make an investor jittery if the investment goes south in the short-term.
By investing in a staggered manner, one can begin with a part of the overall investible surplus.
Hence, even if one doesn't have enough in the beginning, one can always begin with the amount at hand. After arranging for cash in the following months, one can continue to invest.
Valuations of certain stocks could correct after one purchased them despite the market going up. This could happen due to news-based events such as the resignation of the CEO or the introduction of a new competitor.
An individual who invests in one go may suffer regrets later, especially if this person has not invested in the right kind of stocks.
Therefore, the losses suffered may also be higher. But, if one adopts a staggered approach, one can avoid suffering regrets.
Therefore, just like how investors have used the SIP approach to create wealth by investing in mutual funds, one can use a ‘staggered approach’ to create wealth by investing directly in equities.