One of the main challenges investors face is ‘when is the right time to invest?’
As an investor your aim is to make money, so naturally it’s tempting to try and time your entry into the market and wait for prices to fall to grab a bargain. The problem is investment markets can move quickly and you’re just as likely to miss out on making good returns by waiting to invest.
The truth is markets can go up, down and sideways over the short-term and it’s almost impossible to pick the top or bottom (even for professionals). However if you’re completely out of the market you have no way to benefit from the gradual increase in prices over time.
Thankfully, there is a way you can avoid the anxiety of investing, closing your eyes and hoping for the best! This is a simple investment strategy called dollar cost averaging.
The best time to invest is… regularly.
Dollar cost averaging is one of the most powerful ways to get ahead when you invest. Instead of trying to time your entry point, dollar-cost averaging is a strategy to invest your money gradually over a few weeks or months.
If you invest smaller amounts regularly over a period of time you will buy your investments at an average price. You get to take advantage of any market dips (and pay a lower price) and at the same time reduce your risk of buying just before a market fall.
If you wait to save up large lump sums to invest you potentially risk
a) Missing out on compound returns and,
b) Being more impacted by short term market movements.
Ultimately, if you have a long-term investment mindset dollar cost averaging can reduce anxiety about losing money when you invest. The only downside is that if markets don’t dip, you’ll end up buying higher and higher but at least you’ll be making a profit on your earlier purchases.
How do I dollar cost average?
A dollar cost average investment strategy is easy. Simply make a plan of how much you want to invest and set up a regular top-up. The easiest way to do this is by setting up an automatic transfer from your bank account.
At Stockspot we don’t charge for regular top-ups to make it easy to use a dollar cost averaging strategy.
Let us do the hard work for you
Stockspot can take the hassle – and cost – out of managing your own diversified investment portfolio. We research the best local and global investment options and work out how much to allocate to different asset classes to build you your own personalised portfolio, based on your goals, your timeframe and appetite to take or avoid risk. You can start with just $2,000, or if you have $50,000 or more you can unlock our various ‘investment themes’ to further personalise your portfolio. For investors with more than $200,000 we can help you transition your existing investments with a personalised implementation plan. You can find out more about how we build and rebalance your portfolio using smart technology to take the hassle (and cost) out of managing your investments.
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