Vail Valley: Systematic investing helps smooth ‘bumps in the road’
Vail, CO Colorado
VAIL, COlorado –In the investment world, there aren’t many certainties, but here’s one of them: Prices will always go up and down. As an individual investor, you can’t do anything about this volatility. But the way you respond to it could make a big difference in your long-term investment success.
Many investors think they can beat volatility by trying to time the market – in other words, by buying when prices are low and selling when prices are high. In theory, this is an excellent strategy, but in reality, it’s pretty much impossible to follow – because no one can really
predict, with any accuracy, market highs and lows.
So instead of attempting to time the market, you’re much better off following a time-tested strategy known as systematic investing. To systematically invest, you simply put the same amount of money into the same investments at regular intervals. To illustrate, you could put $100, $500, $1,000 or more into Investment X on the first of every month. To make it even easier on yourself, you could automatically transfer those dollars from your bank account directly into the investment you’ve chosen.
In all likelihood, your contribution will buy a different number of shares of Investment X each month. For example,
if Investment X sells for $100 per share in January, a $500 investment will buy five shares. In February, if the price has fallen to $50 per share, your $500 will buy 10 shares.
In other words, you’ll automatically buy more shares when the price is lower and fewer shares when the price is higher – and that’s a great way to cope with market volatility.
But systematic investing also offers some other advantages, including:
• Efficient share building: The more shares you own of an investment, the bigger your cumulative gains whenever the price of that investment rises. Consequently, increasing your shares should be a prime objective – and systematic investing is one way of building your share ownership.
• Investment discipline: Most people realize the value of investing for their retirement and other long-term goals, but they often put it off each month and find other things to do with the money – and by then, there’s often nothing left to invest. But by setting up a bank authorization to invest systematically each month, you’ll “pay yourself first.”
• Lower cost of investing: Through systematic investing, your cost per share likely will be lower than if you made sporadic lump sum investments. And by lowering the cost of investing, you will, in effect, have the potential to
boost your returns.
While systematic investing is typically a good way to fight the effects of volatility, it can’t guarantee a profit or protect against loss. And keep in mind that you need the financial wherewithal to keep investing through up and down markets. But if you have that ability, consider systematic investing. It may not be glitzy or glamorous, but it may work for you.
This article was written by Edward Jones for use by local Edward Jones Financial Advisers. Taylor Leary, Tina DeWitt, Charlie Wick and Kevin Brubeck can be reached in Vail at 970-476-1791, in Edwards at 970-926-1728 or in Eagle at 970-328-4959.