By setting aside $50 every month, you can invest just like the pros and make yourself rich! It’s true, and it’s not hard. The stock market is not just for those who are “rich” and “talented” or those accustomed to making money this way, it can be for anyone if you implement the same money-earning strategies, with as little as $50 a month.That’s right, the amount of money you spend on a haircut or a nice bottle of wine, consistently invested monthly, can actually pretty much guarantee your financial stability. If you’re in your late 20’s or 30’s and you begin setting aside $50 a month, you can have a decent shot at being very, very well-off by the time you hit retirement.
The Best Part
One little tip that a lot of investors won’t tell you is that there are a few stock market strategies that actually work better if you invest smaller amounts of money over a consistent time frame rather than large chunks at a time. This is especially helpful if you are working with a limited budget and don’t have a huge amount to invest every month. All it takes is a small amount of money, some discipline to keep at it, and the patience to wait for the payout.
The Concept
The particular strategy you want to use here is called dollar-cost averaging, or DCA. It might also be called the constant dollar plan (in the United States) or cost average effect (irrespective of currency). While it might sound complicated, it’s really not. It’s actually so surprisingly low risk, so what are you waiting for?
Here’s what you do:
- Open an investment account with a mutual fund that deals with smaller investors, or a brokerage firm.
- Work your way into the market with as little as $50 a month into a fund that offers broad exposure to the whole stock market. This means that instead of buying shares in just one company, that $50 buys small amounts of lots of different stocks in different industries, education mutual funds, and other stock investments. You might also purchase some penny stocks, should you choose. It’s up to you!
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- As you keep investing that minimum $50 every single month, your money will buy some shares when the prices are low and some again when the prices are higher. Basically, you get more when the price is low and fewer when they are more expensive. As time goes on, the average cost per share of the stocks you purchase into will become increasingly smaller. This is why the strategy is called dollar-cost averaging. It lessens your risk of investing a huge amount of money all at once.
Experts Agree
If you put 100 experts into a room it might be hard to get them all to agree on the best way to invest, but this one actually is a strategy most will agree is successful. Dollar-cost averaging has been time-tested, reduces the guesswork and worry for an investor, and is relatively easy. Just keep investing that $50 or so every month and watch your seed money turn into a real investment.
Advantages
The main advantage of using the DCA strategy is that it’s great for beginners who are concerned about the risk of loss. On top of that, it performs better when the market takes a downward turn since it provides some short-term downside protection.
Disadvantages
The dollar-cost averaging strategy doesn’t have disadvantages per se, just that it might not be as lucrative as fast as lump-sum stock investing. In a study performed by Vanguard, the two strategies were looked at side-by-side in the U.K., Australian, and U.S. markets and they discovered that the lump-sum strategy generated better returns than the DCA strategy about two-thirds of the time.
Conclusion
If you have a large amount of cash around, or you have a bit of extra cash every month you can spare, at least $50, and you’re willing to invest that month after month for a set period of time (like 10, 15, or even 30 years), you may want to consider the stock market strategy called dollar-cost average strategy. Your risk of loss is reduced with a large amount of your money, and it doesn’t take large amounts of cash that you have to keep investing on a regular basis. Take that $50 and invest your way to wealth.
Source: She Knows
Featured Image: Pixabay