We don’t talk a lot about investing here on the Money Manifesto blog. Honestly, it’s because I find investing quite boring. Don’t get me wrong, investing is very important. It’s a key to eventual financial freedom. If you’re investing right, it can be very boring and there isn’t a lot to report on.
While I find the act of investing very boring, I can’t say the same for watching my investments grow. I get very excited to see my retirement and investments accounts slowly grow toward my eventual goals. That wouldn’t happen without having some guidelines to follow when I invest.
So what concepts do I use to guide my investments that is so boring?
Dollar Cost Averaging
Unfortunately I don’t have huge amounts of cash laying around to invest at any given point in time. My guess is that you probably don’t either. That’s OK though. Instead of throwing big chunks of money in the market at any given time, I simply invest with money from every paycheck I get.
How does it work? I simply set up automatic transfers to my retirement and brokerage accounts to invest money for me one day after each of my paychecks. That way I don’t forget and I don’t have to think about it.
In addition, I’m slowly buying shares a little bit at a time. What’s the benefit of that? I know that I’m not investing all of my money at a potential peak of the market. Instead, I get a few shares as they go up and down and in the long run I’ll benefit from the historical increases the stock market has provided.
Low Cost Investing
Low cost investing is the only way to go in my book. I personally use Vanguard due to their large selection of low cost funds that meet my needs. Even a 0.50% difference in investment fees can mean hundreds of thousands of dollars difference in your eventual nest egg. Crazy but true.
Not Trying To Time The Market
I never try to time the market and this works perfectly with dollar cost averaging. I simply invest every single paycheck. Why is this important? If you miss just a couple of the best days in the market each year you’ll lose at least a couple percent off of the annual return.
Plus, if I try to time the market with my investments I have to make two decisions. First, I’d have to decide when to sell before or right at the peak of the market. If I sell too early I’d lose out on profits and if I sell too late I’d lose a ton of money. The second decision is when to move back into my investments. If I get in too early, I’d lose even more money but if I get in too late I could miss some of the biggest gains of the year. It doesn’t sound worth it to me, because I’m no fortune teller.
Reevaluate Investments At Least Yearly
One last thing I make sure I check at least yearly is how my investments fit my goals. I make sure that they still fit my risk tolerance and that they’re not slacking in performance. One day you’ll be living off of your investments, so you’ll want to make sure that they still fit your needs and you don’t ignore them. You could quickly end up in bad shape if you do.
By following these simple rules, my investing strategy has become extremely boring. Personally, I think that’s a great thing! It makes it so I don’t worry or freak out over market dips or gains. Instead, I’ll simply watch my investments grow until one day they put off enough income so I don’t have to worry about making money ever again!
Do you subscribe to the boring method of investing or do you look for excitement in your investments? How has your strategy worked out for you?
Photo by: timparkinson Text added by: Lance Cothern