Finance

Systematic investing is a long-term strategy

Often people are afraid to invest in the stock market because they are worried about buying at the wrong time and losing money. Some may also think that they do not have enough money to start regular investing, which is a smart way to make money over time.

It’s natural to be afraid of the unknown, but the US stock market has historically generated much higher returns than savings accounts, certificates of deposit, and other secured accounts.

The good news is that you don’t need to be rich or a forgotten genius to be a successful investor. You don’t need a lot of money either. You just need a little bit of discipline, some patience and realistic expectations as well as an understanding of the basics of systematic investing.

If you have 401(k) In your workplace, you are already participating in a systematic investment. Other than knowing that money comes from your check in each pay period to fund your retirement, you may not know much about how that works. This story will explain that. Those who want to go out on their own by opening their own brokerage accounts and making their own investment decisions will also have a better understanding of how to achieve this.

Principles of Systematic Investment

Systematic investing (also known as Average cost in dollars) removes the absurdity of trying to get the market out of the picture. By making regular monthly purchases with the same amount of money, you will buy more shares when prices are low and buy fewer shares when prices are high. You will also build wealth simply by saving money regularly.

A systematic investment strategy is simply an investment – or you can call it a contribution – a regularly set amount in the same investment to calculate its average cost. Let’s say your budget is $100 per month to buy a fund that is trading at $10 a share. In that month you will buy 10 shares. If the stock goes to $5 per share, you get 20 shares for the same $100. Likewise, as stock prices rise, you will buy fewer shares. You won’t have to worry about the market while you are creating your account because you either see your account rise in value or you buy more shares with the same amount of money.

In the future, the account will be affected more by the way the market operates than by your normal monthly purchases. But by then you will have a large nest.

Is Systematic Investing Right for You?

Systematic investing is best suited for individual investors who can save money indefinitely (for the benefit of children or grandchildren) or for at least 10 years. It’s especially suitable for people in their twenties and thirties, as young investors start saving for retirement. If so, talk with a tax professional about how to set up your account.

You will not become an instant millionaire with systematic investments but that is not the goal. The goal is to achieve a higher return on inflation in the long run. When investing every month, you won’t have to worry too much when the market crashes. Low stock prices help you. When prices go up, you get richer.

As you build your regular investment account, you will start getting benefits double. This is the time when your money will work for you, rather than having to work hard for every dollar.

7 ways to stick to your investment plan

The hard part will always be sticking with your investment strategy. Brokerage firms want fast traders. Financial news channels and websites always want to say something cool. There are a lot of stories on the internet about people getting rich quickly, and the other side is those stories that strike fear into the heart of potential investors.

Don’t buy into the hype. Don’t get excited or panicked if your wallet suddenly increases or falls. Markets will rise, and they will fall, but the chart below reminds us that the S&P 500 has trended higher in the long-term. Check out our seven ways to stick with your investment strategy below.

1. Decide how much you can invest each month

Determine how much you can allocate each month without fail. It is better to invest very little in the beginning rather than having to skip a month, or worse, having to withdraw from the account. You can always increase the monthly amount as your income increases.

2. Find a good diversified fund with low expenses

Choose a fund that invests in many different industries, so your performance doesn’t depend too much on fads. Money that simulates S&P 500 . Index They are often inexpensive and easy to follow. When the S&P 500 goes up, you’ll know your money has gone up and vice versa. If you are worried that the stock market is too volatile, you can invest in a fund that includes bonds. These funds are more likely to be more stable but are more likely to return less than a pure stock fund.

You will also want to check to see if the minimum investment in the fund fits your budget. Some funds have a high minimum investment. You can avoid this by buying exchange-traded index funds, otherwise known as ETFs.

professional advice

Open a brokerage account that allows you to make automatic deposits and purchases.

3. Find the right brokerage account

Many online brokerages offer low or commission-free trading and automatic purchases. Open an account with the minimum deposit required. Then set up a regular deposit from your checking account and enter a recurring order that automatically buys the same dollar amount.

Robinhood It offers all these features and has a low minimum. Take advantage of these account features and ignore the speculative advice that encourages you to trade more frequently than necessary. Stick to this strategy and reap the savings offered by Robinhood and similar brokerages.

4. Set up an automatic deposit

Depending on the brokerage firm and your bank, you may be able to set up an automatic withdrawal from your bank that goes directly to your brokerage account. If necessary, you can instruct your bank to automatically send money to your brokerage account as if you were paying a bill automatically.

5. Set a recurring purchase order

In your brokerage account, set your recurring purchase order to be executed a few days after the automatic deposit arrives to ensure that cash is available. This will prevent your monthly purchase order from being rejected. If prompted, the order type should be ‘on the market’, which guarantees that the order will be executed at the market price. Limit orders require the stock price to be at or below the price you specify. If the stock price is higher than this specific price, the trade will not occur. This would defeat the entire objective of the strategy.

6. Make sure everything is running smoothly

Monitor your brokerage account to ensure that the funds are deposited from your bank on the appropriate day and that your order is fulfilled. Do this every month.

7. Be patient and watch your wealth grow

It is not unusual for US markets to suddenly rise or fall. It is possible that your account has been suspended for several years in a row. This should not stop you because you will be investing long enough to mitigate the effects of a long-term downturn. As long as your money goes up more than down over the time you fully follow this plan, you’ll get the dual benefits of rising markets and disciplined saving.

Contributor Sam Levine is a Chartered Financial Analyst and Chartered Market Technician who has written on financial topics since 2003. He is an Assistant Professor of Finance at Wayne State University in Michigan.





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