Though it’s tempting to buy everything you like, delaying gratification to secure your financial future is more beneficial. For starters, investing generates long-term returns. It might be safer to hold on to cash, but your savings are bound to depreciate because of inflation.
Investing also prepares you for retirement. When money works for you from an early age, you have more years to compound the earnings and ease into a comfortable retirement. You could even retire early. But in the quest to grow wealth, you’ve probably asked yourself, how often should I invest? The answer is simple: you can and should invest as much as and as often as you can afford.
Invest As Often as You Can!
With numerous investment platforms and applications, you can buy and sell shares from wherever you are using only a smartphone. Regular investments have several advantages over market timing. First off, you can start with minimal capital. Rather than waiting to amass a lump sum, you can build your portfolio with small regular investments to a diversified fund.
Frequent investments also come with greater flexibility. You can increase or reduce your contributions whenever you encounter unexpected expenses or receive big money.
Further, regular investments provide market experience. The more you invest, the better you become as a trader—though we’d generally recommend you stay away from day trading. This way, you can make sober decisions during a market crisis instead of trading with your emotions.
Although the frequency of trades varies from one investor to another, there are several pointers on when to buy and sell. For example, an undervalued stock is most likely a good purchase. By estimating an organization’s growth prospects, you can buy its stock at a discounted price before it starts appreciating. You’re also ready to invest once you research the stock. Besides reading annual reports, you can follow a company’s latest news releases to gauge its performance.
The Importance of Dollar-Cost Averaging
Dollar-cost averaging (DCA) is a periodic investment plan where traders make automatic contributions at specified intervals. Such investments can be annual, quarterly, or monthly. Dollar-cost averaging has numerous advantages. First off, it controls emotional investing. By creating a disciplined purchasing strategy, DCA protects investors from information hype to prevent panic selling.
Similarly, the technique promotes self-control. You overcome the fear to buy more during market lows and the desire to sell during sudden upturns.
Moreover, this strategy gives you market experience. Beginners can channel small amounts until they understand complex investments or grow their income levels. Dollar-cost investing is also cost-effective. Taking the case of bear markets, DCA takes advantage of falling share prices to get more stocks.
Even though dollar-cost averaging is straightforward, there are several things to consider before jumping in. The first one is financial discipline. You cannot change your position because of the current stock prices. At the same time, conduct some due diligence on prospective investments before implementing the strategy. You cannot correct a bad investment decision by using dollar-cost averaging. In most cases, traders incorporate dollar-cost averaging into passive investment strategies. That way, they minimize the hassle of tracking actively-managed stocks and mutual funds.
Transaction costs also matter; regular investments translate to higher operating costs. To prevent transaction costs from depleting their returns, most investors go with passively-administered index funds owing to the low percentage fees.
Note that dollar-cost investing isn’t for everyone. You may prefer a different strategy if you’re investing a lump sum for a short period. What’s more, DCA might not be ideal for high-minimum mutual funds invested through brokerage accounts. You could also opt for another strategy if you have time to research the market.
Other Things to Keep in Mind
Frequent investments aren’t the only component of a solid financial strategy. Start by defining your financial goals. Whether you’re buying a car, saving for retirement, or planning for your child’s college tuition, these goals guide you on how much to invest.
The next step is attaching a timeframe to your targets. By classifying your goals as short-term, mid-term, and long-term, you know the right tools to actualize your dreams. This goes together with understanding your risk tolerance. If you cannot handle sharp market swings, you’re best suited with a conservative portfolio. Otherwise, you may forget your long-term goals and sell too soon.
You cannot underestimate the power of frequent investments. You may not see immediate results, but your small contributions will eventually pay off.
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