One of the principles of successful investing is to make regular contributions – in this way, you buy when asset prices are low and you also buy when they are high.
You don’t have to agonise over when to invest and, on average, your buying price will be lower over the long term. This is called “dollar cost averaging” and many investors unknowingly benefit from it.
But before you can invest you first need to have saved some money to invest! It’s easy to get started.
Many people fall into the trap of paying everyone else first and then take what’s left over. This not only diminishes self-worth, but if there’s not much left after everyone else has been paid, it can also be quite depressing.
Step one in establishing a regular savings plan is to pay you first. Even if it’s only 10% of what you receive… it’s yours (and you’re the one who’s worked hard for it!). Then you can focus on paying everyone else.
Open a separate bank account to place that 10%. Online savings accounts offer better interest rates, low or no fees and are easy to set up and maintain. Establish a regular automatic transfer from your everyday account so you don’t miss the money. And leave it there to build.
While you’re saving, start looking for opportunities to invest your money to earn a higher return. One option when starting out is to invest in a managed fund. These funds pool your savings with thousands of other investors, giving “small” investors access to a wide range of quality investments, managed on your behalf. Managed funds allow you to start investing with as little as $1000 which is built upon with monthly installments that can be automatically transferred from your savings account.
This is where we come to the “science” of dollar cost averaging. By investing the same amount every month your contributions are purchasing units on a regular basis, irrespective of the current market price. Over time, the power of regular purchasing has shown that investments are bought at lower average prices, giving you more units for the same outlay, which again compound as you reinvest the returns.
Investing doesn’t diminish the importance of regular saving – after all you can’t invest money if you don’t save it first! Stop procrastinating and start building your wealth today.