Monthly versus lump sum ETF investments

(Shutterstock)
(Shutterstock)

A Fin24 user wants to invest in ETFs, but is not sure if it would be better to invest a lump sum or smaller monthly amounts. He writes:

I am retired. I am fortunate to receive an adequate monthly pension and have some investments in stable and balanced funds and in the money market with two reputable investment institutions.

I now have R48 500 which I want to invest for about three years and was considering the Satrix 40.

However, regarding a monthly compared to a lump sum investment, what would you advise: A monthly R5 000 (times 9 months deposit), or once-off?

Obviously, the monthly deposits would be fed from an interim money market investment.

Mike Brown, managing director of etfSA, responds:

The table below shows the value of the R48 500 once-off investment after one and three years, using actual data for the past one and three years and the comparative value of a R5 000 investment for nine months, held for one and three years.

We have used various ETFs to give some idea of past investment performance for different product types.

Please note, historic investment performance might not be replicated in future, so this is indicative only.

The products compared are:


As can be seen from the table above, the lump sum investment goes to work from day one, so has produced better returns over the past three years.  

For the debit order investment, it takes time to build up the lump sum capital, so the returns are lower over the period.

The main benefit of a debit order investment, if the investor does not have a lump sum available to invest, is that, if the market falls on a temporary basis, the debit order investor may pick up ETF securities at a lower price, which could enhance performance over time.

- Fin24

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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