Systematic Investment Plan - SIP

  

Categories: Investing

A system. A pattern. An algorithm. And it can be something super-simple, like $200 a month. That's the systematic investment plan: you take $200, every month, no matter what, come Hell or chai water, and you buy $200 of ticker: SPY, the index symbol of a popular index representing the S&P 500. That's $2,400 a year invested, every month, for 25 years, no matter what. That's your retirement plan.

Do it right, and you retire in fine style with no worries. Welcome to America.

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Finance: What is a Constant Dollar Plan?5 Views

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Finance a la shmoop what is the constant dollar plan? well trying to game the [Two men playing monopoly]

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market wait until that perfect day when it bottoms then you'll get invested yeah

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well maybe if you were an MBA PhD and had ten years training at the best hedge

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funds and had a natural knack for market timing and really new financial history [Resume appears]

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well maybe then it might make sense for you to roll the dice even though knowing

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that all of your brethren with the same background are wrong about half the time

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but you're a plumber or a surgeon yeah not that much of a difference or a [Surgeon holding a heart]

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lawyer or a professional wrestler so what on earth are you doing trying to be

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smarter than the smartest professionals on Wall Street who are actually educated and

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supposed to know how to do this stuff and even they're wrong a huge percentage

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of the time right so you want to be invested in the stock markets all right

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that's a smart move hard to argue and the US stock market has generally gone

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up a whole lot over time you know about 10% a year with dividends reinvested [US stock market chart]

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roughly so rather than trying to be clever about things and maybe sit in a

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whole bunch of cash while the bull market takes off and you're just staring

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at it not making money well why not take away the decision process and deploy

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what's called a constant dollar plan well you want shares of given index fund

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and call it ticker spwhy which represents the sp500 and is super cheap

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on fees yeah like that super cheap like 18 cents for every hundred bucks that

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you invest the management fees per year way cheap so you want to invest your [Man approaches piggy bank]

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easy savings of five hundred bucks a month

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well you just discipline yourself to oh i dunno, on the 15th of each month you invest

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that 500 bucks regardless of the price of the index fund last month its NAV or

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net asset value was 13 dollars and 38 cents a share and your $500 bought you a

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500 / 13.3 yeah about 37 shares of it all right well this month dropped it's

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now only 12.75 so your $500 buys you a few more shares that's 500 divided [Last month and this months stock values]

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12.75 yeah got it next month well it might be $13 and 87 cents a share and

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yep your $500 will then buy you fewer shares but do you really care can you do

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anything about these differentials no should you hold your money in cash in a

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B of A account getting 1% of your interest waiting for the NAV of the fund

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to magically one day dip down to 12 dollars and 56 cents a share

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hoping to then at that moment put all of your dough to work well what if the fun

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never gets there and given that over time the market goes up when your not [Arrow points to stock value rising]

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invested in it you're basically betting against it history or data in making

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such a big bet there yeah how does that make sense so a constant dollar plan

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takes away that risk kind of the the risk of missing the bull market the

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market goes up about six out of every seven years so it's a bad bet to sit out

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usually well that's a bad thing right so get invested and think of a constant

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dollar plan as the religion of magic piggy banks that as long as you follow [Piggy bank levitating in a church]

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the code of the Jedi and put that 500 bucks away every month regardless of

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price you will wake up one day in great wealth and feeling the force of taxes

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I'm sorry you knew we were going to go there [Man discussing taxes]

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