Here are a few simple ways to do well when it’s time to invest your money . Often several aspects of investing are difficult to understand. So, how to invest your money with mutual funds.
You probably know that there are a few concepts to master in your investments to be able to make good long-term returns.
Here is in my opinion a list of things to master so that you are able to invest your money in mutual funds:
- the allocation of your capital;
- your patience;
- and most importantly, controlling your emotions.
You see that curiously 33% of the things to master in my opinion are of a purely financial nature. But the other 2 essential variables for successful investing depend on you, your patience and your emotions.
I talk to you about emotions last, but it is of paramount importance. Selling at the right time is arguably more difficult than knowing when to buy because your emotions may dictate your conduct.
Have no fear, I’m giving you a tool to fight your emotions and get out of the game during these strong stock market movements.
Invest your money with mutual funds using fixed amounts
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My magic way to overcome your emotions is to simply buy your mutual fund shares without ever worrying about the mood of the market.
You should not be influenced by the ups and downs of the stock market.
Easy to say, isn’t it? 🙂
Fixed-money recurrent buying is the ultimate secret, in my opinion, to solving your emotion problem.
When you invest, you probably ask yourself these 2 questions:
- is it the right time to invest?
- should I sell now or wait a little longer to earn more?
Another big secret to investing your money wisely in mutual funds is to establish your long-term return outlook. Avoid basing your investment decisions on short-term stock market volatilities.
What is the fixed sum purchase method?
The fixed-money purchase method works well for those who want to own a portfolio of mutual funds.
Indeed, using the dollar cost averaging method is more difficult to implement for those of you who want to invest directly in the stock market with individual stocks or buy ETFs.
To popularize this period purchase method by fixed sums, you must in fact buy the units of your mutual funds at regular intervals by devoting the same amount of money each month.
Note that the frequency can also be weekly or quarterly.
Personally, I like the monthly frequency for 2 reasons:
- I have 12 chances a year to take advantage of temporary market declines;
- by making my budget every month, it’s easy to immediately allocate a monthly sum to invest in my portfolio.
In short, regardless of your frequency, the important thing is rather to devote a portion of your income to investing in mutual funds.
Here is an example of the effectiveness of the periodic purchase by fixed sums every month
Let’s say you’ve decided to invest $500 per month to grow your investment portfolio and want to use the power of mutual funds
The current value of your mutual fund share is currently selling for $20.
With your $500, you then buy 25 shares.
During the month, a major correction occurs and you take a 25% drop.
Normally, your emotions are working against your enrichment and telling you to sell. Better to have 75% of your money right away than to risk losing more over the next month.
Luckily for you, you know the ultimate secret to investing your money in mutual funds .
You know that your decisions are influenced by your emotions. And to avoid the worst, you pay no attention to your emotions and you apply the technique of investing at regular intervals by fixed sums.
In addition, since your investment horizon is over a long period (say a minimum of 5 years), this temporary drop does not bother you at all.
So you buy the next month another $500 of shares.
With this 25% drop, the value of the shares is now at $15. So you add 33 shares to your portfolio.
The following month, the market goes up. On the other hand, you are still far from your starting $20. Indeed, the value of the share is currently worth $16.50.
Like a real investor, you maintain your discipline and you still make periodic purchases in fixed sums. Your $500 entitles you to add another 30 units of your favorite mutual fund.
WHAT IS THE FINAL OUTCOME OF THIS STRATEGY?
The track record doesn’t look good, doesn’t it?
You invested $1500 in a fund whose value went from $20 to $16.50, a drop of more than 17%!!
On the other hand, if you take a closer look at your own performance, your portfolio has fallen by more than 15%.
A 2% difference in return over a 20-25 year period is huge!
Applying your fixed sum investing strategy has helped you reduce your risk.
In addition, you have more shares in your portfolio. So when the market goes completely back to normal, you are going to have a higher net worth .
One thing is certain, if you had refused to systematically invest your $500 every month, this advantage would have been reduced to nothing.
It is often said that to make money in the stock market, you have to buy low and sell high. This is exactly what the regular monthly purchase method with a fixed amount of money does for you.
To successfully invest your money in mutual funds, you must persevere through thick and thin. This is how the money will accumulate in your bank account. It really is a certainty.
History has shown that to us and I don’t see why it would be any different over the next 100 years.
Indeed, if you manage to put in place your discipline to make automatic savings and that you combine with that the investment at regular intervals by fixed sums, you will accumulate a lot of money.
Apply this method with your mutual funds and you will have a powerful combination to enrich yourself in the long term.
