Making regular investments
Points to know
- Making regular investments can help you stay on track and reach your goal faster.
- By setting up automatic investments, you ensure that you won't miss an investment.
Give yourself the best chance to reach your goal
Making regular investments is one of the best ways to meet a big goal while feeling only a small impact on your daily life.
Once you decide to regularly invest smaller sums of money, it's important to make a commitment to a specific plan. If you just figure you'll invest whatever you have left at the end of each month, you'll probably find that "whatever" often translates to "nothing."
Then, the best way to make sure you follow through on your commitment is to move the money out of your bank account before you ever get a chance to spend it.
Automatic investments: 1 less thing to remember
If you invest in mutual funds, you can set up automatic investments to make it easier to stick to your plan.
Not only is setting up automatic investments a way to simplify your life, it's just smart investment behavior in general. It removes the pressure to decide when to make each investment—sidestepping the possibility that you'll be too indecisive to make any move at all.
Setting up automatic investments is also a good way to get into dollar-cost averaging, which is a fancy way of saying that the shares you own will have had a variety of purchase prices because you bought them at different times.
Why is this a good thing? When shares are more expensive, you'll buy fewer of them. When they're cheaper, you'll buy more of them. Overall, this will push down the average cost of your shares.
Making multiple purchases at different share prices could also be a benefit at tax time if you're able to sell specific shares for a loss in order to offset other sales where you had taxable gains.
A type of investment that pools shareholder money and invests it in a variety of securities. Each investor owns shares of the fund and can buy or sell these shares at any time. Mutual funds are typically more diversified, low-cost, and convenient than investing in individual securities, and they're professionally managed.
All investing is subject to risk, including the possible loss of the money you invest.
Dollar-cost averaging does not guarantee that your investments will make a profit nor does it protect you against losses when stock or bond prices are falling. You should consider whether you would be willing to continue investing during a long downturn in the market, because dollar-cost averaging involves making continuous investments regardless of fluctuating price levels.