191) Why you should do DDI

191) Why you should do DDI?

DDI is the acronym for Direct Debit Instructions. Also known as Auto debit. It is a standing instruction for your bank to transfer money from your savings account into another account.

In the Unit Trust industry, it usually means transfer from your savings account into your investment account on monthly basis.

What are the benefits?

Dollar Cost Averaging

You can do the Dollar Cost Averaging (DCA) principle for your investment. DCA enables you to invest small fixed amount, consistently over a long period and avoid the market timing issue. You have the market timing risk if you invest a large sum in one time investment.If you are lucky, you got invested at a low price. If you are not so lucky, you got invested at a high price.  

Save first, spend later.

You have heard of the good advise to save your money first, and then only spend whatever is left. This will ensure you set aside you investment commitment first and only able to spend the balance.

Discipline, no emotions.

With automated bank deduction, you will not be influenced by your emotions. It is very easy to fall into the market timing trap. You will always be tempted to wait for a lower price before entering into the investment. By following the market swings, so too will be your emotions. Always influenced by the market..

Won't forget

As it an instruction to the bank to deduct on monthly basis, you do not have to remember to do the transfer. It is a very high chance that you will forget to do the transfer consistently. You will be able to focus your time and energy to more productive tasks.

Consistent amount.

As the DCA principle, the investment amount is consistent. By being consistent amount, the weightage is the same for all investment time. It works very well for the DCA principle.

Convenient 1 time set up.

As it is automated, you only need to setup the DDI once. The bank will do the monthly deductions until your set timeline to stop.

No big amount affect spending.

As the amount is small, but consistent, you will not feel the effect to your budget. You will feel that the amount balance is just like the take home pay. It is just like the regular deductions for Provident fund, income tax, fees, etc. After a few months, you won't even feel the reduction in your take home pay.

Peace of mind. Emergency fund.

When you have set up a regular investment plan, you are also automatically set up an emergency fund. This DDI investment should be considered as the last resort and only used during a real emergency. You have a peace of mind that there is some investment money that is kept in another account.

Wealth accumulation.

Your small buy consistent DDI deductions also mean you have a plan to accumulate wealth for your future financial goals. The goals can be retirement funds, children education, down payment for a new house, a special holiday trip with your loved ones, etc. As you continue the DDI investment, you surely will have more money in the future.

Targeted amount.

If you have a special goal to achieve, you will be able to calculate the full amount for that goal. For example, you want to retire with $1,000,000 in your retirement fund. Depending on the years to invest, you can calculate on the DDI amount. You can set the DDI a certain amount and get your target amount by within certain years.

Not So Convenient.

Using the DDI to invest, your money is transferred out from your Savings account into the investment account. It is not as convenient to withdraw money from the investment, as compared to a ATM card. Basically it is to protect your money from being spent.You will have more time to think about the spending, instead of falling into the impulsive buying mode.

Do consult your financial consultant for more info and details on the different types of investment available.