When you finally have a master plan to invest in, you should go into the details of how to do it exactly. There is no doubt that you have to build a portfolio, but there is a big difference between unloading all your money on one-time investment and investing the same amount of money over a period of time.
Throwing all your money at the same time results in incredible profits if you manage to invest your money correctly, but the opposite is true. A poorly planned investment will cause you to lose everything. How will you know when the time is right? You can study economic data and pronoun tendencies, but all this is nothing more than looking at things in hindsight.
Ask yourself, are recessions the result of certain practices or are these practices isolated as causes because a recession occurred? Being able to identify causes does not allow you to predict future market trends because these causes always arise only after the damage has been done. In addition, the nature of the market is always changing. Past models and data have never been able to provide any warning to the best economists and governments in the world in each and every recession of modern history.
However, there is a trend that remained true to the last hundred years of the world economy. The economy is always going up or down. And this is why one of the most successful strategies for growth and protection of wealth is one in which money is invested regularly.
One of these regular investment strategies is a monthly investment plan. A regular entry based on monthly intervals coincides with the income received by the vast majority of salaried workers, making it more logical and relevant than any other interval of investment. A more frequent interval would be problematic and would add to the administrative work required for the transfer of money, whereas a long interval would mean that much of the wages are on the banks and do not work for their owners.
We know that past trends do not say much about the future. The upward trend of the market in the last hundred years is no exception. It does not guarantee that the market will continue to rise in the next hundred. So how does a monthly investment plan reduce your investment risk?
Monthly investments work with the simple principle that you can buy a larger amount when prices are cheap and less with prices going up. In this way, it reduces exposure to higher prices and compensates for prices by averaging lower with a higher volume of low prices. The strategy is self-regulating and works as long as you commit to investing regularly.
For example, you invest $ 1000 each month in trust unit A. In month 1, the trust unit was priced at $ 1.00, so you bought 1000 units. In month 2, the price of the unit of confidence An increased to $ 1.25, the reason why it could only cost 800 units. The average purchase price of its 1800 units is now $ 1.11. This means that if the A trust unit trades at a price higher than $ 1.11, it is making money, otherwise, you will lose money. In the third month, unit A was traded at $ 0.80. Although it means that you are losing money, you still buy 1250 units of unit A trust with $ 1000. This averages your purchase price to $ 0.98. In the fourth month, unit confidence A goes back to the price of the first month, which was $ 1.00.
During the 4 months, the average price of unit A was $ 1.01, but because it bought more during low prices and less during high prices, the average purchase price is only $ 0.98; lower than the average monthly price. Over a long period of time, this self-regulation mechanism continues to act; eventually, their average purchase price will be much lower than the actual monthly average. This means that if you sell your units after a long period of time, it will produce a profit at average prices or even slightly below average. In this way, your investment risk is reduced considerably.
A monthly investment plan is one of the safest and low-risk forms of investment, even when investing in moderate risk products. However, a monthly investment plan is not useful at all if the product in which you invest is declared bankrupt. In addition, it is necessary to regularly reinvest in a single product so that the averaging is effective, thus limiting its product range. But these disadvantages can be mitigated by investing in pooled funds that in turn invest in a variety of different products, thus eliminating the risk of losing any individual bankruptcy.
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