Investing is a great way to build wealth and financial security for the future.
If you have the ability to make ongoing, regular contributions to your investment portfolio, such contributions can materially increase the size of your investment portfolio over time by taking advantage of the growth of stock markets, as well as the more immediate and compounding returns from dividends and interest payments.
By investing regularly over time, you can improve your chances of a secure financial future for yourself and your family.
In this blog post, we will explore the many benefits of regular investing and how it can help you achieve your financial goals. This assumes that you have the financial capacity to add to your investment portfolio (versus, for example, using excess cash to pay down high interest debt).
1. Better manage risk and improve chances of better returns
Regular investing helps to smooth out the ups and downs of the market.
At Six Park, we are advocates of ‘dollar cost averaging’. This is the practice of investing a fixed dollar amount on a regular basis, regardless of the share price.
Over the short term, markets move up and down. Over the long term, they tend to go up.
By making periodic investments over the short term, you will sometimes be buying in even when markets are down. But this is a disciplined way to ensure you manage your average cost to reflect both the highs and lows of the markets over time.
Dollar-cost averaging during a “down” market cycle is particularly effective over the long run because you are buying additional shares at relatively low prices. Although there’s no guarantee that the market as a whole will go on to make new highs, it has never failed to do so — historically speaking.
Many people find that dollar cost averaging is a way to manage risk and stress when markets fall, since they will be buying more shares at lower prices. This discipline can have a significantly positive impact on investment returns but requires patience and a long-term investment horizon.
2. Taking advantage of compound interest
Regular investing allows you to take advantage of compound interest and reinvestment strategies.
Compounding is the concept of reinvesting the income on your investments back into the same investments, as opposed to taking them out as cash. Over time, this means that you can generate “growth on your growth”, thus the use of the word “compounding”.
Over time, compounding returns can have a significant impact on your long-term investment returns.
3. Diversification of investments as your account grows
Diversification is key to managing risk, as it spreads your investments out across different sectors, countries, and asset classes.
Regular investing can be used to diversify your portfolio, helping to reduce your risk. When you divide your money up among several different investments, it can help diversify your portfolio and prevent too much of it from being tied up in a single stock or asset.
Six Park will add additional ETFs and further diversify your investments as you continue to grow your portfolio, and until your account balance reaches $20,000.
By spreading your invested funds across several types of investments, you’re less likely to suffer an extreme loss if something were to happen to one of the investments in your portfolio.
4. “Set and Forget” to stay on track and reduce emotional investing
At Six Park we make it easy to set up a recurring deposit from your bank account into an investment account. Then you can “set and forget” if you wish, and let our service do the work of managing your portfolio and investing additional contributions over time.
This can help you develop a disciplined investing habit and stay consistent with your savings goals.
This also helps you to be more efficient in how you invest, reduce emotional investment decisions and potentially lower your stress levels when the markets are volatile.
Read more about the impact of emotional investing.
How Six Park can help you
Regular investing is an excellent choice for those wanting to grow their wealth over the long term.
It helps you to save money without having to think about it too much, and it also allows you to take advantage of the average increase in markets over time.
Additionally, regular investing helps diversify portfolios, which can help reduce risk in volatile markets.
Our service encourages regular investing in two ways:
- we include four quarterly investing days on 1 November, 1 February, 1 May and 1 August; and
- outside of these quarterly trading days, you can always add to your investments with our Invest on Demand and Automated Investing options.
This article may contain general financial product information but should not be relied upon or construed as a recommendation of any financial product. This information has been prepared without taking into account your objectives, financial situation or needs.
For further details on our service please see our Financial Services Guide at http://www.sixpark.com.au. Past performance is not a reliable indicator of future performance.