Regular Investing Makes Winning Strategy : Finances: Getting into the habit of contributing to a nest egg resolves some troublesome questions.
To achieve some peace of mind about your financial situation, don’t just invest--invest regularly.
That’s one of the first suggestions many advisors make as they counsel people with money to manage on how to begin a new year with a fresh start toward their goals.
The idea seems fairly simple. A savings and investment account, like a lot of other things, will probably grow best if you keep feeding it.
But there’s much more than that to the idea of making regular contributions to your nest egg. A program of systematic saving resolves some of the most troublesome questions that come up about investing by rendering them irrelevant.
No longer need you confront the issue of timing the markets, the economy, or the astrological cycle, for that matter. Neither must you concern yourself very much with sophisticated questions like determining the rate of return you are getting at any given moment.
The routine of regular investing provides a measure of discipline, and minimizes distractions and worries that often serve as ideal excuses to procrastinate.
In a bull market climate like the one that has prevailed in the 1980s and 1990s for both stock and bond investments, systems of regular, periodic investments haven’t paid off to the degree that riskier strategies might have. The way to make the most money was to get as many chips as possible into the game as fast as you could.
But for many people trying to meet goals such as retirement saving and future tuition payments for children, maximum return may not be the most important question. Indeed, the purpose of what you are doing can get lost entirely if you start to view investing as a sort of sport in which the player who racks up the most points wins.
When you invest the same amount each week, month or quarter in a vehicle such as a mutual fund, you diversify your investments over time--and thus no longer have to wonder “is now a good time to invest?” as you sit down to write your check.
“The bond and stock markets will always have their ups and downs, and it is impossible to consistently predict the direction of the next move,” says Douglas Loudon, investment director at Scudder Investor Services’ AARP Investment Program.
If the fund’s net asset value happens to be lower six months from now than it was today, well, then your next contribution to your account will buy more shares at that lower price. Since you continue to add to the pot, the value of your account will tend to keep increasing--in the early years at least--even in periods when the value of a single share declines somewhat.
It may sound like heresy to suggest that performance isn’t important. And of course, the return you earn can make a big difference in how effectively you pursue your financial objectives and how soon you get there.
But when most people look at performance, they look at short-term results, year-to-year or quarter-to-quarter or even week-to-week, which often don’t tell you much of value and may prompt you to jump around needlessly from one investment to another.
