Periodic Investing – What is Important to Know?

Have you ever dreamed of additional income? Or perhaps even passive, periodic income to supplement your budget? If so, you’ve likely considered investing. Investing is one way to put your savings to work and earn from them. You can invest in various ways: in yourself, precious metals, securities, real estate, investment funds, cryptocurrencies, or business. You can choose long-term or short-term projects, and invest either irregularly or periodically. This time, we want to tell you more about periodic investing, what returns you can expect from this method of capital growth, the best frequency for doing it, the advantages and disadvantages of periodic investing, and what is important to know for anyone looking to try it out.

What is periodic investing?

Periodic investing, as you might guess, is regular investing at certain intervals, i.e., putting money to work to increase or maintain initial capital. Saving money risks depreciation over time due to inflation, so to avoid this, people often invest part of their savings. Investing a large sum can yield significant profits. However, to earn more, specialists recommend choosing periodic investing. Periodic investing can be done in any chosen asset: deposits, stocks, bonds, etc. The important aspect here is not the amount invested but the regular habit, which helps develop patience and the ability to wait, as in periodic investing, amounts are invested regardless of market conditions. Periodic investing might not guarantee high returns, but it often helps ensure a higher yield.

Calculating the returns of periodic investing

Calculating the returns from periodic investments is quite simple – you just need to look at how much money you’ve invested, how much you’ve received back, and how much you’ve earned from it. However, this method is effective only after receiving the money back. So, how do you calculate potential earnings? A periodic investing calculator can help with this. You just need to specify the amount of the one-time initial payment, the frequency of payments, the annual return on investments, the investment period, and the size of the periodic payment to easily find out how much you will earn at the end of the investment period. For example, if your initial payment is 3000 euros, you additionally invest 100 euros every month for 5 years, and if your annual return on investments is 6 percent, then at the end of the investment period, the final value of your investments will be about 11,000 euros.

You can also calculate the returns of periodic investing yourself. First, you should calculate the value of the initial deposit after 5 years: subtract the annual return from one, raise it to the power of the number of years, and multiply the result by the initial deposit ((1-0.06)^5*3000=4014.68). Then you need to calculate the value of the periodic deposits: add the periodic return to 1, raise this value to the power of the number of periods, subtract 1 from the obtained number, divide everything by the periodic return, and finally multiply by 100: (in the mentioned example: (((1+0.005)^60-1) / 0.005) * 100=6977). Just add these amounts, and you’ll know that investing a 3000 initial deposit and an additional 100 euros monthly with a 6 percent annual return for 5 years, the final value of the investments will be 10992. In total, you will have invested 9000 euros, so over five years, you’ll earn nearly 2000 euros without leaving your home.

What is the best frequency for investing?

Periodic investing works when investing periodically: every 12 months, 6 months, 3 months, or even every month. However, different intervals can yield different benefits and challenges. It is hard to say exactly how much you will earn by investing at different intervals. Some are satisfied with a few hundred euros of earnings per year, while others aim for thousands, so the best frequency for investing depends only on your expectations and possibilities. Let’s briefly review the pros and cons of different frequencies.

Annual periodic investing, i.e., allocating a certain amount every 12 months, can bring significant capital growth. However, usually investing once a year involves a larger amount than, for example, monthly investing, meaning a larger initial sum is needed. Of course, this can result in much better outcomes than monthly investing, but not everyone has or dares to invest a larger initial capital. The main drawback of such investing is that by investing only once a year, part of the funds are accumulated and not invested, leaving them unutilized and depreciating. Also, it is much harder to balance the portfolio and increases the likelihood of investing at a "bad" time when the market is down. Such an investment strategy also complicates investment diversification.

Semi-annual periodic investing, i.e., every 6 months, is also a strategy chosen slightly more frequently by investors. It does not require as large a sum as, for example, annual investing. However, by investing only twice a year, it is hard to predict market fluctuations, and choosing riskier areas can result in losses. Moreover, maintaining investment discipline is challenging when investing semi-annually.

Quarterly periodic investing, i.e., every three months, is indeed favorable as you don't need a large sum right away, you can invest in different projects or investment instruments, and thus faster create diversification and protect against loss-making investments. Also, investing every three months is not very time-consuming, making it easy to form and maintain such a habit.

Monthly periodic investing can be somewhat tiring, as you will have to remember to invest every month. On the other hand, you likely make payments at least once a month anyway, so one more financial transaction may not be that complicated... Choosing to invest monthly allows you to work with smaller sums. Unfortunately, a smaller sum brings less benefit, but you get it every month. Thus, you will earn less but faster, and next time you can invest a slightly larger sum. Monthly investing is perhaps the most popular strategy among investors, especially at the beginning of their investing journey, as it helps to develop the investment habit, quickly understand the peculiarities of investing, and with this method, fewer funds remain unutilized.

What are the advantages and disadvantages of periodic investing?

We've already discussed what periodic investing is, how to calculate returns, and the best intervals for investing; now let's talk about the advantages and disadvantages of periodic investing. Like any investment, periodic investing has not only positives but also negatives. In some cases, the positives far outweigh the negatives, in others – slightly less so.

Advantages of periodic investing

The biggest advantage of periodic investing is not the reward, as one might think, but the discipline. Periodic investing encourages investors to plan their personal or family budget, create a financial plan, and follow it. Besides personal development, periodic investing helps systematically grow initial capital, create passive income for financial security, strive for financial freedom, or even make it the main source of family income in the long run. Periodically investing over a longer period allows money to be utilized not only when the value of the investment asset rises but also when it falls, reducing the risk of significant losses. Moreover, periodic investing is associated with much lower emotional influence: there is less fear, hesitation to invest, and more rational and profitable decisions are made.

Disadvantages of periodic investing

Periodic investing requires more time and effort. If investing irregularly, you only need to sit at your computer or other device once, find the best financial instrument, analyze potential earnings and risks, choose the best method, invest, and... wait for the return, while with periodic investing, similar actions must be repeated every month. However, choosing to invest through crowdfunding platforms makes it much easier. Also, periodic investing requires careful financial planning, regularly setting aside a portion for investments.

What is important to know before starting periodic investing?

Before starting periodic investing, first, you should know that whether it is irregular or periodic investing, it is divided into three categories based on the investment period. Short investment period – investments not exceeding 3 years; medium-term investment period – investments lasting 3–7 years; long-term investment period – 7 or more years.

As you can see, investing is not something that will quickly bring you financial benefits. Therefore, before starting to invest, it is important to understand that nothing happens quickly. Although it is possible to double your invested money in a year, it will require a lot of effort, experience, and, of course, taking on much higher risks. Financial experts advise never to rush to earn a lot, as haste is directly related to risk: wanting to earn more, you will invest in riskier projects, which means the possibility of losing the invested money will increase.

Another very important thing is to know how to save money for investments. First of all, never invest money intended for daily family or personal expenses, savings, do not utilize the so-called financial cushion or rainy-day savings. The money allocated for investments should be set aside separately. You can do this by creating an annual, semi-annual, or monthly financial plan.

Periodic investing with Profitus

What would you do first if you had a million? And what if we told you that realizing these dreams is not that unrealistic? According to specialists, choosing the right investment method, you can earn your first million in just 28 years. Start your periodic investment journey with profitus.lt, where you can invest easily even with small amounts online. Investing in "Profitus" is secured by real estate, so you, like other people financing a specific project, will receive real estate collateral in return. Deciding to put your money to work, you can choose which project to allocate it to, for what period, and for what amount. Investors typically receive a 12% return, which is a great start to your first million!

We remind you that investing always involves the risk of losing part or all of your investment, so we recommend diversifying your investments.