Investing can be just as rewarding, if not more so, than your typical run-of-the-mill savings plan. For saving in general, it’s usually advised to put aside between 10 to 15% of your monthly income. Should you bring in £2,000 each month, it’s a good idea to at least save £200 of that paycheque.
But that’s not the correct answer for everyone and is the baseline goal you should meet when looking to invest. You see, not everyone is in the position to pull in £2,000 per month. Then you need to check your debt and outgoings. It’s always better to put money into a savings pot or investment portfolio when you don’t owe any lenders.
I’ve already covered a sound way to bring down your personal debt level in an easier-to-digest fashion. This is incredibly important to achieve prior to investing.
Dollar-cost average investing
After you’re clear, should you save up some funds and then invest in bulk or put forward a regular deposit every week? I prefer the latter approach. It’s called Dollar-cost averaging (DCA) and even though this refers to the American currency, it works worldwide. The idea is to invest regularly.
By splitting that £200 into £50, which is injected every week into an investment portfolio, you’re providing yourself with a better shield against market fluctuations. Especially so with dividend investing, we’re not focused on buying low and selling high. This is great when it can be achieved, but it’s not a priority.
The aim of DCA is to buy continuously through both the good and the bad times. When a stock is priced high (but not overvalued)m you should purchase just as much as you would if it were lower. This way, our portfolio averages out the cost. You can then focus more on the dividend payouts, rather than how much you’re spending on shares.
In the end, DCA should almost match what you’d pay if you attempted to effectively time the market, though this depends entirely on market fluctuations and other factors.
Regular injections leads to a better portfolio
Once you’ve established a schedule for regular portfolio injections, you’ll be able to purchase shares in stocks every week. And when tracking all your transactions with something like my dividend portfolio tracker, everything will be easier to digest. You can see just how well it’s performing.
There are other positives to regular investing and it’s not always strictly portfolio-related. One is the discipline by keeping to a strict schedule. A good selection of brokerages allow you to set up automated injection schedules. Set up one with a broker like Trading 212 to automatically transfer money from your bank each week and it’s easy to stick to it.
There’s also less stress. Much like day trading, if you’re only wanting to buy low for dividend investing, your levels of stress will undoubtedly increase simply due to gazing at stock price charts to try and time it right. Should you miss an opportunity or invest and see the price fall, it’s likely going to leave you feeling left out. DCA addresses this entirely.