Do you have an amount left over every month and do you want to invest it? Then you could choose to invest periodically.
How does it work if I invest periodically?
You choose what you can afford to lose and because of this regular entry method, your portfolio is less sensitive to price fluctuations.
Periodic investing is especially suitable for mid to long-term investing. This way you build up exposure to the financial market faster and oftentimes your accumulated transaction costs are lower. This can result in a higher return too if markets are favourable.
Why invest periodically?
There are several advantages to periodic investing. Of course, it depends on your goal or your wish. But by using periodic investing, you have a number of advantages as an investor:
- low-threshold starting (you can start with a low amount)
- long-term diversification (less risk)
- less dependent on the market (compensating products e.g. one goes down, another goes up)
- peace of mind (your broker executes and often decides the instruments)
Where does my money go when I invest periodically?
By investing a fixed amount each month, you buy the desired investment fund or ETF at the decided-upon amount. If the price is relatively low, you buy relatively many pieces. For example, if you invest 100 USD a month, and the cost for the ETF is 10 USD, you buy 10 units.
In the opposite case, if the price is high you buy relatively few pieces. For the same 100 USD, you might buy 5 items several months later, due to a price increase to 20 USD.
The advantage of this is that you pay an average price for your pieces over a longer period of time (so-called dollar-cost-averaging).
Dollar-cost averaging is a method Investing Guides uses, as it ensures you do not risk getting into the market at a bad time (consistently). Timing the market is not only extremely challenging, but it oftentimes backfires.
Either the market goes down after you bought heavily, or you wait for a correction that might not come. That means you lose out on opportunities.
Beneficial for the mid to long-term investor
Periodic investing is ideally suited for mid to long-term investors, who want to build a position step by step. Because you invest for the longer term, you are less dependent on stock market fluctuations and a longer investment horizon can work in your favour in the long run.
Of course, you can also use your periodic orders to spread your portfolio and its structure based on your own preferences. This is your chance to invest in what you believe in! For example, by investing 50 USD a month in tech funds, 25 USD in Asia, and 25 USD in a green energy ETF.
Let's summarise the benefits
- Monthly subscription without transaction costs
- Staggered entry, more calm and less volatility
- Grow your wealth neatly every month