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Why you should automate investing

You may have to think about spending less for that purpose, however, the outcome over a period of time will surely have a positive impact on your future financial life. One way to ensure that your regular investments are the last to suffer is automating them.

The current crisis has made all of us rethink the way we manage our cashflows. Every month money comes in, we spend, we save and maybe we invest. But now more than ever as incomes and inflows become uncertain there is a need to ensure that to whatever extent possible, regular investments don’t suffer. You may have to think about spending less for that purpose, however, the outcome over a period of time will surely have a positive impact on your future financial life. 

One way to ensure that your regular investments are the last to suffer is automating them. 

What does automation mean? 

Automation of your investments may already be part of the routine. In simple terms, it means that you put a system in place so that every month your regular investments happen without a need for any manual intervention. The decision to invest, the amount to invest and the time to invest can all get automated. Mutual funds offer a very easy way to do this through systematic investment plans (SIPs). You can automate your long-term investment, your short-term investment and contributions to your emergency fund. 

A systematic investment plan is a defined amount that is invested each month in a fund of your choice. Depending on your long and short-term financial objectives you can choose one or more schemes and assign SIPs of a preferred amount each month. You can even choose the number of months you want this to continue.

Automating investments can help you –

By scheduling a SIP for the first week of each month, you will have put aside an investment for an amount that you can afford to spare each month without giving up essentials, utilities and some entertainment. If you don’t schedule it, spending say Rs 5,000 in a weekend it not a big task and you have already let go of your investment in doing that. 

1. Make investing a habit

Left up to your discretion, you may not end up investing the same amount every month. There are greater temptations and far more nudges for people to spend their money than there are for investing. Hence, if you think that at the start of every month you will decide how much to invest after you have made some purchases, you will probably find that you have varying amounts each month and probably nothing left at the end of some months.

By scheduling a SIP for the first week of each month, you will have put aside an investment for an amount that you can afford to spare each month without giving up essentials, utilities and some entertainment. If you don’t schedule it, spending say Rs 5,000 in a weekend it not a big task and you have already let go of your investment in doing that. 

2. It reduces emotion 

An automated investment discipline, allows you to keep up your investments in uncertain markets and times of panic, where you otherwise may become too conservative and not want to invest. On auto mode, you will let it happen rather than worrying too much about interim setbacks and corrections. Thus, ensuring you also invest in growth assets at lower prices, which helps build future value. 

Plus, if you are worried about cashflows, you will more likely cut back on expenses rather than cut back on the automated investment. Hard times are usually not permanent and if you can go through these times by being tight-fisted rather than compromising on future financial goals, then that’s a benefit you should take up. Automated investments will help you do that. 

This is not just a solution for hard times or market uncertainty, making this a permanent solution can help you build your investments in a systematic manner which will benefit long term wealth creation. 

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