Investors have built unwavering faith in systematic investment plans. We’ve been fed data and proof that SIPs work for a wide variety of reasons. It helps investors average costs, causes us to regularly save, saves us from worrying about market highs and lows, and lowers volatility. The SIP mantra seems failsafe.
Investors have grasped the cyclical nature of lump sum investing and seem to believe that systematic investing will iron out the volatility and negative outcomes. Yet, what we’re failing to see is that systematic investing is only a tool. Tools are meant to be used in specific situations with discretion. Is a hammer the best way to drill a hole in a wall?
We can’t expect SIPs to work in every market, for every fund, or across all instruments. There’s no reason why SIP returns that disregard valuations and cycles should always be profitable.
The trouble is that investors aren’t prepared for hard truths. The beloved SIP is bound to disappoint those who’ve started at the wrong time or in the wrong place.