Make the Most Out of Your Investments with Consistent Investing
Whether you’re saving for retirement, building a nest egg or planning for a major life event, consistent investing can help you stay on track and maximize the potential return on your investments. Consistency is the key to give yourself the chance to generate the best potential return on your investment.
Automatic investing – setting up a regular transfer of funds into an investment – can help avoid taking the risk of timing the market or missing out on opportunities. Dollar-cost averaging can prevent you from buying when the market is high by consistently investing through the market’s share prices. These simple, yet powerful strategies, can guide your financial future.
Here are the five benefits of consistent investing.
1. Helps with Dollar-Cost Averaging
Dollar-cost averaging is the practice of investing a fixed dollar amount on a regular basis, regardless of the share price. It's a good way to develop a disciplined investing habit, be more efficient in how you invest and potentially lower your stress level—as well as your costs.
Check out Dollar-Cost Averaging in action:
Let's say you invest $100 every month. When the market is up, your $100 will buy fewer shares, but when the market is down, your money will buy more. Over time, this strategy could lower your average cost per share—compared to what you would have paid if you'd bought all your shares at once when they were more expensive than the average:
| Month | Investment Amount | Price per Share | Shares Purchased |
| 1 | $100 | $10 | 10 |
| 2 | $100 | $9 | 11.11 |
| 3 | $100 | $8 | 12.50 |
| 4 | $100 | $9 | 11.11 |
| 5 | $100 | $10 | 10 |
| Total Invested = $500 | Average Cost per Share = $9.20 | Total Shares Purchased = 54.72 |
In the example above, dollar-cost averaging enabled this hypothetical investor to take advantage of share price declines in Month 2, 3, and 4, thus reducing the average cost per share. At the end of Month 5, the investor would own 54.72 shares.
By contrast, if our hypothetical investor made a one-time investment of $500 at a price of $10 per share, they would own 50 shares:
| Month | Investment Amount | Price per Share | Shares Purchased |
| 1 | $500 | $10 | 50 |
| 2 | $0 | $9 | 0 |
| 3 | $0 | $8 | 0 |
| 4 | $0 | $9 | 0 |
| 5 | $0 | $10 | 0 |
| Total Invested = $500 | Average Cost per Share = $10 | Total Shares Purchased = 50 |
The examples above are hypothetical and to illustrate the principle of dollar-cost averaging.
In a perfect world, the investor would have invested all the money in Month 3 and would have 62.50 shares. However, no one can predict knowing when the price will be the lowest, which is why dollar-cost averaging is so valuable. By investing frequently and regularly over a long period of time, you're less likely to miss out on those buying opportunities. Keep in mind, however, that dollar-cost averaging doesn't ensure a profit, nor does it protect against loss in declining markets.
2. Builds Good Investment Habits
By regularly investing each month, you build “muscle memory” for your investment strategy and reduce the risk of not investing in months when your budget might get tight, or you have an impulse to forgo investing to buy something else.
3. Provides Flexibility to Capitalize on Future Opportunities
If you invested everything you have all at once, you wouldn’t have the flexibility to take advantage of opportunities that have value later.
4. Lessens Chances of Regret
If a one-time investment declined significantly and there is no opportunity to invest again for some time, the natural human reaction is regret, which could lead to reluctance to invest in the future, missing out on gains.
5. Avoids Price-Anchor Bias
If a single investment declines, the investor may be reluctant to sell, thinking it still has value. By dollar-cost averaging, investments are bought at varying prices, so there is less chance of focusing on the depreciation of a single price.
Start Investing Regularly to Build Wealth
Start investing in an easy, hassle-free way. Check out CommunityAmerica’s digital investing tool, Guided Investing. Opening an account takes five minutes and requires as little as $200 to begin. Guided Investing provides you a personalized portfolio based on your preferences and financial goals, and lets you set up recurring investments to put your money to work. Learn how to grow your wealth over time by scheduling a complimentary consultation with one of our experienced Wealth Advisors. Our Wealth Advisors can strategize with you to develop a comprehensive plan to help you on your path to financial peace of mind.
