If you want to get rich invest regularly. It’s really as simple as that. When it comes to investing, success or failure depends not on what specific stock someone buys, but whether or not they develop important habits that set them up for long term success. That’s why today’s post looks at why it’s important to invest regularly.
Invest Regularly to Build Wealth
If you want to get rich and build wealth, then the single most important thing you can do is to start saving and investing on a regular basis. The sooner you start, the better and remember that no matter what the market does it’s important to keep investing through the ups and downs.
When you invest regularly, you are consistently building wealth. After a while, your wealth will continue to grow and take on a life of its own. That’s because when we invest, 4 things work in our favor:
1. Pay Yourself First
When we invest our money, it starts to work for us by earning income from interest and dividends as well as capital appreciation.
2. Investment Income
The money we invest starts to produce money on its own in the form of dividends and distributions. If we re-invest this income, our investments will grow even faster.
3. Dividend and Distribution Raises
Periodically, companies and mutual funds will increase the amount they pay out to their investors. This provides a nice little boost to the income that our investments produce and helps them grow a lot faster because even more money will be working in our favor.
4. Investments will Increase in Value
When we invest for the long term, we can expect that our investments will increase in value. This means that our equity or net worth will also grow. These so-called capital gains are strictly paper profits (i.e. not real), unless the investments are sold and the profits are realized (i.e. they become real).
Benefits of Dollar Cost Averaging
One of the benefits of investing regularly has to do with Dollar Cost Averaging. Basically, that means using small amounts of money to buy a stock or an index fund at regular intervals so that you buy some shares at a higher price and some at a lower price. The aim of this approach is to smooth out the ups and downs of the stock market so that your actual cost of the investment is somewhere between the two extremes.
Imagine that you invest a lump sum of say $12,000 in a particular stock or index fund. Now imagine that the market crashes and your investment loses 50% of its value – Ouch! How would you feel about that?
Now imagine that, instead of investing all $12,000 at one time, you decided to invest $1,000 a month for the entire year. Some of the year you’re buying high and for the rest of the time, you’re buying low. Following such an approach, in this example, would likely mean that you would have avoided a dramatic 50% drop in the value of your investment. Maybe the investment is down only 20%. This is precisely the benefit of investing a set amount on a regular basis.
Investing Regularly is Affordable
I think that choosing to follow an investment approach that involves investing a set amount of money on a regular basis appeals to many people because it’s an affordable way to build wealth. I think most people would agree that it’s a lot easier to find $100/month to invest in a retirement fund than it would be to cough up $1,200 all at once.
Many financial institutions offer their own automatic savings/investing plans for as little as $25 a month. That’s right, for as little as $25 a month you can start building wealth and a secure financial future.
Automatic Investing is Easy and it Works
Building long term wealth requires a commitment to save and invest on a regular basis. The problem is that most of us simply don’t have the time or we forget to make a point of investing each and every month.
That’s why automatic investment plans are a great tool to keep us investing on a regular basis. When you take the time to set one up you’re showing a commitment to your financial future. You’ll end up paying yourself first because it will seem like just another bill coming out of the account. Over time, you’ll begin to see this small amount grow and compound into a huge nest egg.
Automatic investing is the big reason that I’m able to continuously build wealth. Every week I invest $100 into index funds in my retirement account. Each month I invest at least $100-$500, automatically into my dividend portfolio. This money buys shares in banks, utilities, telecoms and other companies and is the main reason why I’m able to continuously grow my net worth and dividend income.
The best thing about automatic investing is that it removes emotion from investing equation. It’s no secret that we’re our own worst enemies when it comes to investing – and much of that has to do with our emotions. When we see the stock market rise we get greedy and want to participate in it, so we buy and this pushes up share prices. On the other hand, when the stock market falls we get scared that we’ll lose our money so we want to quickly sell. It’s exactly this type of behavior that wrecks our chances at becoming successful investors. That’s why I choose to make regular, automatic investments.
So there you have it, if you want to get rich and build wealth, then invest regularly. With a new year just around the corner, make saving and investing on a regular basis a priority for financial success in 2017.
Image Credit: Image by thanunkorn / Freedigitalphotos.net