I have always been a great fan of regular saving plans.
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I started one for my son within a few weeks of his birth and will soon be opening one for my daughter, who was born a few days ago. Saving for things that we want later in life is a great habit to develop at an early age, but I think that a regular savings plan is something that most people would benefit from.
One of the beauties of buying mutual fund units via a regular saving plan is that it takes a lot of emotion away from investing. We all know that the two emotions that are the enemy of every investor are fear and greed. When markets are going up week after week, it is hard to stop oneself from being sucked into the excitement and investing at the top.
Similarly, when there is nothing but despair in the news and shares are cheap and unloved, it is very hard to summon the courage to invest.
When we look at great times to have invested, they tend to be during periods of crisis. We may tell ourselves that we will invest the next time markets are at bargain-basement prices. However, when such times arrive, we tell ourselves this time it's different and find a reason not to invest.
A few weeks ago, I wrote an article suggesting it might be a good time to invest in India after the huge share price falls. With hindsight, it looks like a good time to have invested, but I suspect that few would have done so as the news flow was so grim at the time.
If you were investing in a regular saving plan, you would have been buying some very cheap units during the summer. In fact you would have been buying lots of cheap units after every major crisis.
For every US$100 (Dh367) that you invest every month, you will be buying a lot more units when they are cheap than when they are expensive. While this may seem a basic statement of mathematics, it is the principle behind a really important investment technique known as dollar-cost-averaging.
Quite simply, if you regularly invest in a fund that at some point in the future rises, you will reap handsome rewards from having accumulated so many cheap fund units during times when prices are depressed. If you choose to invest in an insurance savings scheme, you may also have the benefit of some valuable insurance protection alongside your investment.
So what sort of person would benefit from dollar-cost-averaging? I would say almost everyone. If you are an expatriate hoping to save a nest egg to take home with you, a regular savings plan is a really convenient way of meeting that need.
Of course, if you have a particular financial goal in mind such as a wedding, school fees or a top-up to your retirement fund, then a regular savings plan can be the perfect solution.
Even if you are a serious investor who enjoys trading in individual equities, currencies, bonds or commodities, regularly saving in a fund can provide a good bedrock to build your portfolio.
The choice of funds in a regular savings plan is clearly driven by your personal circumstances, attitude to risk and the length of time before you will need to redeem the investment.
I will be investing in relatively high-risk investments for my children as they have a very long time horizon and the inevitable setbacks will give us the chance to buy lots of cheap units. That is why I am investing in a mixture of funds specialising in areas such as emerging markets.
Alan Durrant is the group chief investment officer and general manager of the asset management group at National Bank of Abu Dhabi
