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In recent years, stock market investment has increasingly captured public attention, with numerous writings, advice, and opinions appearing on the subject. The wide range of investment opportunities and accessibility of internet information have both contributed to this growing interest. Nevertheless, those who have never dealt with investments before often find themselves at a loss and unsure how to navigate this seemingly complex world. Taking the first steps, understanding the basics, and selecting the right strategy are undoubtedly challenging tasks, especially for those lacking experience or expertise in this field. In this article, we present one of the most straightforward and perhaps the most stable investment options, which is accessible to everyone regardless of their financial situation.
Recurring investments, also known as the "Dollar Cost Averaging" strategy, is an effective method that involves investing a fixed amount regularly over a specified period. The repetition of capital investment is automated, as we can set up a regular, fixed amount transaction, similar to how we automate bill payments through our bank's platform.
The distribution of the invested capital in the portfolio is the investor's responsibility, providing the opportunity to dynamically tailor the strategy to individual financial goals and risk preferences. In this case, continuously expanding the portfolio involves the investor's effort, as they need to select which products to invest the regularly incoming new capital into and how to adjust the portfolio over time.
Hang on for a moment! - Didn't I read that recurring investment is automated?
Fundamentally, recurring investments entail the above, and it is undeniable that it requires attention in the beginning. The only exception is if recurring investment is placed in a managed fund, where the portfolio manager does the "dirty work" for a specified compensation.
In all other cases, i.e., if we manage the portfolio ourselves, several important factors must be considered! Investors need to monitor market movements and thoroughly analyse selected assets or products. This may include examining corporate fundamentals, technical analyses, and monitoring market trends. In addition to these basic requirements, investors need to periodically review and modify their portfolios based on new information and market conditions. It is essential to have sufficient knowledge and understanding of various asset classes and strategies to make effective decisions in portfolio management. The conclusion is that the core strategy of a self-managed portfolio may be recurring investment, but thorough preparation and personal involvement are inevitable for successful investment.
Let's be clear!
Scroll to topThere is a form of repeat investment that minimizes time expenditure, and we do not need to be investment gurus for this strategy to be most effective. This strategy is particularly applicable to the statement that short-term market fluctuations can be minimized, and both the regular capital investment and purchase of stock exchange products or items occur automatically.
The first step of the "Dollar Cost Averaging" strategy is to determine how much we want to invest at regular intervals. This amount is fixed, so we know exactly how much capital is available.
The regularly available capital is automatically invested in a carefully selected asset or asset group, following a predefined allocation scheme in the case of asset groups. This regularity helps us continually build our portfolio without the need to actively monitor prices or make investment decisions.
As the name of the strategy implies, over time, the average purchase price of the acquired asset or asset group stabilizes, thereby reducing timing risk and minimizing the short-term impact of market fluctuations.
Although recurring investments do not guarantee short-term profits, they can contribute to long-term wealth growth, especially if the investor holds positions for the long term.
Considering that every coin has two sides, it is essential to mention some disadvantages of recurring investments. The strategy does not provide investors with the opportunity to take advantage of the benefits of timed market entries because capital is invested regularly and predeterminedly, regardless of the market situation. As a result, the strategy may potentially miss out on temporary market downturns or opportunities presented by undervalued securities.
It is no secret that for recurring investments, the most common choice falls on various stock funds (ETFs). ETFs allow for easy and efficient diversification. However, we can just as effectively build our portfolio from individual stocks or even bonds. It is worth paying more attention to dividend-paying products, both in the case of ETFs and individual stocks, as dividend payments contribute to portfolio yield growth in the long run, provide passive income, and alongside repeat investments, can result in long-term capital appreciation.
Whether it's ETFs, individual stocks, or other asset classes, the final investment portfolio must meet individual preferences and goals to be successful in the long run.
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