Investing shouldn’t be exciting, if it is, you’re doing it wrong
It is a long-term, calculated strategy with a realistic goal and continual work. It’s like trying to lose weight. You can’t do it hard and fast and expect lasting results. You’ll burn out, likely fail and then be utterly disappointed causing you to binge eat.
I have previously spoken about Dollar Cost Averaging, but the idea is to consistently and continually invest a set amount at regular intervals. This may mean $100 a month or $5000 a month. The reason we do this is to take timing risk out of the equation. If we continually invest over time, we can smooth the effect of the highs and lows of the market and ensure that we take advantage of whatever the market has to offer.
The compounding effect is arguably the main contributor to ‘getting rich’. This is the idea of reinvesting any earnings that you do make, so that your future earnings will be from a larger base. So you start with $1,000 and you make 10% interest. Instead of pocketing the $100 you made, you reinvest that. You now have $1,100. Next time your 10% will be based on $1,100 and the interest you earn will be $110, and so on and so forth. If you reinvest your earnings every time you do receive a dividend (or interest) you will get a higher amount the next time round.
Low investment fees. Buying and selling stock quickly costs you money on brokerage and extra tax when it comes to capital gains. You need to consider the overall fees that you are paying when it comes to the investments that you choose, and let me tell you there are always fees.
Fees are a fact of life and you should expect to pay fees for professional advice and/or professional investment management, but you want to make sure you are not paying too much so that it erodes your earnings, otherwise what is the point?
You should be investing based on your age and your risk tolerance, not what is hot at the moment. Different investments suit different people depending on what stage of life they are in and how comfortable they feel with different levels of risk.
As we get older we start to protect and preserve what we have as opposed to trying to ‘play’ the market in the higher risk investments.
So all of that sounds pretty boring doesn’t it? Well it is supposed to be. Investing isn’t a ‘get rich quick’ scheme. Sure, sometimes you do increase your wealth quickly with investing but no one can ever truly time the market to make that happen. But if you start now, and continue to build, I guarantee you will be glad you did.
– This post is from our resident senior financial planner, Cara Brett. Check out her details in our about us page.