Investing should be a long term activity. To really get the most out of it, it must become an integral part of your life and daily routine. Therefore, today we’re going to be talking about the concept of “dollar averaging” or consistent investment of a specific set fee over a long period of time.
Dollar averaging investments
Many people view this as something like “paying the bills”, and if that helps you to think about it and remember to do it, more power to you. But what dollar averaging really is, is a personal commitment on your part to continuously feed money into your investments on a regular basis, rather than just letting them sit and do what they will. Think about it. If you were using a regular savings account instead of the stock market, would you just rely on the accruing interest, or would you continue to put money into it when you could, week by week, or month by month? Almost certainly, you’d want to invest in the wiser of the two options, the second one. The stock market is no different.
Set aside some money out of your monthly income (it doesn’t matter how much it is, just however much you’re comfortably willing to part with), and then invest that into your portfolio. This should be the same amount of money each and every month, and it is a practice that has a lot of non-obvious benefits.
Your stake in a company
Firstly, if you’re investing the same amount of money each and every month into your stocks, it’s easier to draw some conclusions about the direction that those stocks will go in. For instance, if you know you’ll be investing x amount into a stock next week, that’s something you can depend upon. You will be able to say that you have x stake in a company, without really wondering about whether that stock is going up or down. Regardless, your value is increasing, and you have more to work with in order to maximize your total profits.
Secondly, it’s a good practice because it keeps you actively engaged with the market. During slow periods, people might sometimes forget to check on the status of their investments for several days at a time. This could easily lead to disaster. However, if you’re continuously investing into your portfolio, it’s always fresh in your mind, and the incentive to check it is always looming. It keeps your investments growing and keeps you on your toes.
See you next week for part 10 of Basic Investment Strategies.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2008
{ 2 comments… read them below or add one }
Hi Sean,
This is exactly what I do with the bank. I paid a couple of thousand to get into having a portfolio with the bank and then I just pay a set amount each month and they take care of the rest.
Because I know nothing I thought it was a great idea and I still think it’s good. I just think it might be time for me to learn to buy and sell my own shares.
Hi Jazz
Ignorance is not bliss especially when it comes to your money. Do you know what stocks are being purchased on your behalf?, how are they being traded? are they insured (probably not likely)
I know a guy who looks after peoples superannuation and I asked him why his company did not insure his clients shares, and he said that it would be too costly and would cost him his retainer and he would be out of a job.
Knowledge is power.
.