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.
Grow your savings the smart way
Stockspot is Australia’s largest and most experienced online investment adviser. We make investing easy and affordable. Whether you’re growing your wealth, saving for a home, a family or retirement, we help you do it with the right investment portfolio and guidance.
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