There is an argument that second guessing the markets doesn't work for the majority of people most of the time. Instead, say advocates, it's best to follow a dollar cost averaging strategy - drip feeding your money into investments at regular intervals, over a long period of time.
This method gives investors the benefits of rises and falls in the investment prices and when applicable the underlying currency changes, over a period of time because your regular sum of money buys more when the price is low and less when the price is high.
One of the advantages of using this approach with managed funds is that the up front fees you pay to invest in a fund is a fixed percentage of your contribution, rather than a flat commission, which you might have to pay when buying a parcel of shares.
That percentage takes the same relative bite out of a $100 investment or regular instalment amount as it would out of $1,000 lump sump investment.
Dollar cost averaging isn't just a strategy just for the cash strapped who can't afford to invest four or five figure chunks of money at a time. If you save a large sum and then invest it all at once, you increase the risk of piling in just before the market goes into decline. It's a great way to avoid investing a large sum of money at the wrong time.
There are arguments and academic studies that conclude against dollar cost averaging and I should mention this before a reader emails me. Dollar cost averaging works best when prices are going sideways or down. Cynics would say that it's a sales gimmick to wheedle over time what you won't commit up front.
Having said that, drip feeding your money into investments has other benefits. A small amount each month doesn't hurt as much as a lump sum. What's more, you're not tempted to spend the lump sum on something else. It's also a good psychological tool because it creates discipline in your investment routine.
Small change also adds up very quickly. To find out how quickly, it's worth fiddling with some online calculators. The regular saving calculator on Sorted.org.nz is a great place to start. When I tapped in $20 a week (invested monthly) at an interest rate of 7.75% over 20 years it added up to $47,913. Unfortunately the Sorted calculator doesn't take into account tax - which almost all of us pay. If you want to be a real nerd, check out www.financialcalculators.com/ConsumerCalcs.htm where you can tinker away with what-if scenarios to your heart's content.
It has to be pointed out that $20 is the cost of a nice bottle of wine, pizza takeaways for the family, or less than two packs of cigarettes, and so on. In other words it's small change. Try using the "Pleasures vs Treasures" calculators at thisismoney.co.uk/calculators to see just what your vice is costing you.