SIP vs Lumpsum (Part 2) – NOT ONE SIZE FITS ALL

In the last article ‘SIP Vs Lumpsum- Part 1’, you understood what are the basic differences between SIP and Lumpsum. If you haven’t read Part 1, please click the link and read before moving further.

Factual differences between SIP and Lumpsum –

You now know there are three basic parameters where SIP differs from Lumpsum investing style – capital availability, time-frame of investments & market understanding.

Is it enough to choose one over another?

Or there can be a personal and unique approach for your individual investment style that might govern your ultimate experience of investing and hence your investment returns…

Indeed, it is really important to match your investing style to your unique personality to reap maximum benefits from it.

I ended last article promising to explain to you, ‘How you can select best investment style for yourself based on certain personality traits that are unique to you’. Here we are going to discuss both the WHY and HOW of matching personality to investment style.

First you need to understand the WHY…

Why should you bother about adding one more parameter to money, there already seem to be many already? That’s the point, matching your behavioural traits to your investing style would make it simpler for you. The simpler it gets, the better results you will get from your investments.

Every decision you make requires certain discipline, as well as a certain level of tolerance and acceptance. Even the tiniest financial decision you make has some or other emotional repercussions. Hence, as you become more aware of your own self, you will be able to make decisions that will help in upkeep of your mental and thus emotional well-being.

Let’s understand what are the major benefits of aligning your investing style with your personality:

Now you know the great benefits that are brought by syncing your investment style with your personality (behaviour). In-fact the benefits go much beyond investment returns and affect your life as a whole.

The HOW…

I am sure, next set of questions on your mind is, ‘So how do I do it?’, ‘What does it involve?’, ‘Does it need an expert opinion?’ so on and so forth…

Ah… it already seems to be so complicated and I am so busy!! I understand you are very busy and hence will try to answer all (most of) your questions in next two minutes.

Do you need an expert to do this? – NO

How can you do it and what does it involve? – for the scope of this article you just need to understand what behavioural/ emotional traits do SIP and Lumpsum investment styles require. Match your own personality (behaviour) and select the one that feels right to you:

So, if you are someone who needs constant poking to save/ invest and gets scared by temporary swings in your invested capital, you should consider SIP to instil a discipline in yourself.

On the other hand, if you are someone who can resist spending the amount you have kept aside for investing later and are not so much scared by market volatility, you can consider Lumpsum investing.

However, behavioural traits can not be the only criteria to make the final decision. You need to consider both factual as well as behavioural sides of your unique situation. The easiest way to arrive at decision using both is by making a Decision Tree. It will look like a flow chart where every question has two answers – one affirmative and another negative.

Using the information given in both the articles, you will need to make a decision tree for yourself. In the next article, I am going to explain how to make quick and simple Decision Tree for yourself. I would also share a couple of sample decision trees.

#sip #BehaviouralFinance #MoneyMindset #Investing #lumpsum #moneypersonality