Weekly vs Monthly Investing?
4 Sep, 2022
Today I’m sharing a practical example of why it might be worth investing weekly instead of monthly and moving from Smartshares to InvestNow to enable that.
I’ve met many lovely people via my blog, few more lovely than Dale and Dean. We have been emailing back and forth for three years, and they recently let me know of a significant change they have made to how they invest. With their permission, they have let me share it.
They are self-employed (they work together), have low business expenses, and keep a tight reign on their business cash flow. They invoice weekly, earning them a good income and keeping cash flowing into their business and personal bank accounts. They have been investing monthly with Smartshares, and every six months or so, scrape any surplus out of their business and invest that as a lump sum.
They have been consistently investing in four Smartshares ETF funds:
US 500 (USF)
NZ 50 (FNZ)
ASX 200 (AUS)
Total World Fund (TWF)
I specifically put them on the spot and asked them to share their numbers because I think it is helpful for others to see that it is normal to aim to have large sums of money invested in the share market. We are used to seeing house prices of $1,000,000 and feeling this is perfectly normal. I want others to feel the same about seeing high numbers in the share markets too.
Their investments outside of KiwiSaver now total ~$475,000. Their total investments, including their KiwiSavers, are ~$690,000. They are long-term investors, knowing that money needs to be left alone for ten years plus before they might start to draw on it for early retirement.
They aggressively paid off their house, were debt free by age 50 and have since invested HARD for retirement and life. I interviewed them on podcast episode 33. A Debt Free Birthday. Dean said that despite being tempted, they had resisted the urge to keep tweaking these investments and have persisted with monthly investing. They have now been investors long enough to feel little worry or concern when they see returns dropping or the market being generally quite volatile as it has been these last couple of years. If anything, they see this as the opportunity to buy shares more cheaply.
Passing on their knowledge
At their church, they run a personal finance course, encouraging people to pay off their mortgage faster, save on interest and become debt free faster. And it was this sentiment that got them thinking about the way they are investing.
It has always bugged them that when you invest with Smartshares, you can only invest once a month on the 20th. There is a good reason for this, though. Smartshares, with the help of a share registry, is an issuer of ETFs for the NZX. They make ‘new’ ETF units just once a month. Other platforms are on sellers of existing ETF units that are already ‘on market’, i.e. have already been created. But still, Dale and Dean couldn’t help but think that if paying off your mortgage faster saves you interest, paying into your investments more regularly would earn better returns. If they invested their money more often, it would be exposed to the market to compound and grow more quickly over time.
The penny dropped
Given how they earn their income steadily across the month; they could easily invest more regularly than once each month.
They didn’t know why they hadn’t actioned this earlier because this thought had been niggling them. Still, they kept telling themselves that this once-a-month transaction and the delay in having units issued (they arrive early in the next month) was a minor issue and that they should just take a chill pill.
Finally, they got thinking about the long-term impact these restrictions might have on their long-term investing outcomes. Using the Sorted savings calculator, they started looking at what would happen over the next ten years if they invested the same amount they do now but split it into weekly investments rather than monthly.
Their rough math showed that for the amounts they invest, they would have 8.4% more invested after a ten-year period, just by investing weekly rather than monthly. In their situation, this could amount to >$86,000 in ten years!
A small tweak could lead to big outcomes
I’m no statistician, but that feels statistically ‘significant’ to me. I’ll share the math below.
They researched and found they could buy the same Smartshares ETFs on any weekday using the New Zealand investment platform InvestNow. They recently signed up, and InvestNow facilitated an “off-market transfer” of their existing Smartshares investments to the new platform (no selling or buying required). Plus, the fee for each fund is identical to Smartshares, and InvestNow does not charge any transaction, admin, setup or exit fees. Although they have no plans to sell shares in the short term, when they do, unlike Smartshares, they won’t require a broker to sell. Smartshares pay InvestNow to be on their platform at no additional cost to the investor. A small sacrifice is that when dividends are paid out, they will need to manually reinvest those dividends unless they want to pay them out to themselves as income.
They said something that I have often heard, the InvestNow website, which has been around since 2017, is nothing to write home about, but neither is Smartshares. Another difference is that when you buy using InvestNow, they hold aside the value of one unit per fund as a safeguard if the unit price increases between placing their order and when the transaction occurs. InvestNow also has investment minimums of $50 when using a regular investment plan or $250 for one-off investments. Furthermore, unlike Smartshares, you invest under InvestNow’s Common Shareholder Number (CSN), not your own (Sharesies do this too). I’m wary of this but have read enough blog posts like this one to feel comfortable about the security of the investment.
Another thing is that whereas Smartshares lets you cut out a bit of admin and directly import your transactions into the share tracking website Sharesight (where you can track the actual performance of your investments), InvestNow won’t. You have to update Sharesight yourself manually. Slightly annoying because someone like myself will forget to actually do this for months on end and then have some catching up to do!
Please do your research
Dale and Dean researched the heck out of making this change (which is what I encourage any investor, new or old, to do) and, feeling entirely comfortable, they have now set up a regular investment plan that occurs once a week rather than once a month meaning that as their income comes in weekly, they can hold back what they need for personal expenses and invest the rest a lot faster.
Now for some basic math:
Dale and Dean invest $4,900 per month or $1,225 per week. They ran their numbers through Sorted and chose returns of 10%* but didn’t consider inflation or tax. The difference between investing weekly instead of monthly was significant; an $86,156 difference!
*They felt comfortable choosing 10% because the Sharesight Share Checker shows that had they invested $10,000 ten years ago in the:
US 500 (USF), the total return would have been 11.66%
NZ 50 (FNZ), the total return would have been 11.79%
ASX 200 (AUS), the total return would have been 13.22%
Total World Fund (TWF), the total return would have been 7.71%
The predicted difference between investing weekly and monthly
Sorted Savings Calculator showing the predicted difference between saving weekly and monthly. Click on the image to enlarge. Source: www.sorted.org.nz
Crikey! Ten years is not long, it will fly by, and $86,156 is a considerable amount of pūtea!
Should I change the way I invest?
FOMO is real!
What if I’ve got my investing frequency wrong?
If you have read my blog for any length of time, you will know that Jonny and I invest just once a month using Smartshares, and I’ve debated with myself many times over the years about this once-a-month set-up. So, of course, after speaking with Dale and Dean, I revisited whether we should make a change to our investing frequency.
Although I would like to invest weekly (I mean, COME ON, look at those extra returns over time), for practical reasons, this weekly investment won’t work for us. The reason is that Jonny and I have a VERY variable income. Although we know the minimum income coming in each month, the maximum varies greatly, and our income comes in as dribs and drabs throughout the month. This makes budgeting harder.
I do what I can and have an automatic $50 weekly investment using Sharesies. I know I can commit to budgeting to invest this amount weekly.
As for the rest of our investing, I automate things as much as I can, with a set amount being transferred each week to a separate bank account specifically called “investing”, but I don’t commit to investing that amount until the 20th of the month once I’ve looked at all of our income and outgoings for that month. Occasionally the money I have set aside to invest gets pulled back into our expenses bank account to keep the lights on at home! Some months we will only manage to invest hundreds of dollars; other months, it is thousands.
Although I love the math above and can see the long-term benefits of a more regular investment strategy, personal finance is not just about math. I think that if we moved to a weekly investment, we would run out of money more times than I would like. And I’m not going to let that happen.
Once-a-month investing works for us. Once I invest money, it is not coming out of that investment for at least ten years, so it is crucial I don’t ‘over-invest’ and be forced to sell to top up our bank accounts. I know that by the 20th of each month, I can commit to an amount to invest while leaving enough money for daily living.
Personal finance is not all about math
You have to apply logic to the specific circumstances of your situation. I can see how it is working for Dale and Dean (and I am delighted for them), and I fervently wish it could be the same for us, but it just isn’t, and by trying to do the same, I’d be trying to fit a square peg in a round hole. It just won’t work.
But what a fun discussion to have, right? I'm grateful they shared their numbers with me and everyone reading this. What is your situation? Are you just ambling along investing once a month out of habit, or could your cash flow allow you to invest weekly? It’s worth thinking about running some numbers, looking at a different provider, and making a change if appropriate.
And for the mathematicians amongst my audience, whether you include inflation or not, allow for tax, or lower the percentage return (or increase it), it’s still going to show that you are better off investing weekly.
I’m keeping an open mind; if our income stabilised and it became more reliable, I would look at this as an option.
