What happens when you invest $100 every month for 20 years?
Investment is a very complicated process that requires a lot of calculations. So, to make this process simple, why not be a long-term investor. Why not invest straight for twenty years. Of course, there is a huge possibility that you will come across an infinite number of fluctuations. Still, the result the investment is going to yield will be better than any safe option present there. If you have a low-risk tolerance, you can even go for mutual funds or index funds. This investment will also lead you to good results. The stocks may go up by 11 percent some year, go down by 10 percent the other or go up by 23 percent the next. It is always a bumper ride. But there is a guarantee that you will have more dollars after the twenty years of investment than before.
Yes, playing safe is always a good option. But risky games, along with good calculations, always yield you higher benefits. You do not have to lose sleep over a market crash since you invest over a considerable period and do not even have to take the risk.
Irrespective of the condition, a fixed sum is kept aside by the investor regularly in dollar-cost averaging. 401(k) is one of the best example to define it. This method is mostly used by investors who invests for longer period of time. This methods involves investing a fixed amount in the market. Investment takes place not just during the good times but in the bad times as well. Learn why you should invest during good times.
Consider the example in which you buy $20 per share and decide to continue investing at least 100$ a month. So this will mean that you are getting five shares of the amount that you have invested. Now the share price will become $25 after one year when the funds have performed well in the market. This will mean that instead of 5, now you will only get 4 shares but this doesn’t affect your happiness. Why? Because the 5 shares you got in the 1st month resulted in a net profit of 25$ while in the following month, the shares price increase by a dollar but you still made a profit of 4.77$ in the month. Like this the price of the share increase but you continued to gain profit. This indicates that during good time, you will get less shares with reduced potential upside in future along with good profits along the way.
All you need to do is maintain your calm because you will even receive benefits during the bad times. Always remember that after a market crash, there is always a recovery. The recovery may not be sudden or immediate but promises you stable returns. His is a big part of why regular stock investors get a higher long-term return than safer investments despite the temporary ups and downs in the market.
Many stocks and funds provide you with an extra benefit, which is known as a dividend. The dividend is the extra percentage of money the owner of the share or the share-holder gets along with the current share pricing. Most mutual funds and stocks offer the option of automatically reinvesting the dividends. This is done in good times and bad times, meaning that you get dollar-cost averaging on what is essentially an invisible boost to your regular investment schedule.
Other than the above-stated conditions, an abundance of factors plays a significant role in defining your benefits. So do not undermine their importance. In reality, your investment calculation will not be as easy as a normal calculator mathematical calculation. It even includes calculating all the pros and cons. Also, the math is usually heavily simplified in that it does not take into account any of the fees, taxes, and similar factors. Nevertheless, there are a lot of examples in history that show that regular investment always proves fruitful. The regular investment makes sure that you will get positive results at the end of your investment. Well, investing in mutual funds is also safe because, in contrast to stocks, mutual funds are premade portfolios of many different stocks with a clearly defined risk profile and built-in diversification, so you do not need to spend time calculating the risks and benefits and losses.
On the other hand, the mutual fund charges an annual fee that grows alongside your capital. Suppose you are comfortable taking a more active role in selecting your investments. In that case, it may make sense to pull the money out of the fund after a few years and create your diversified stock portfolio at a discount brokerage. But that is also a good option if you take into account all the important steps like regular investment and deep calculations not just of maths but of the pros and cons.