The most important thing about investing is that it’s just like going to the gym. You can try going a few times and get upset that you don’t have abs yet, but the secret sauce is consistency. Investing is no different.

Whether you invest weekly, monthly, or quarterly, the key is to make it a regular habit. Just like exercising, investing consistently helps you build wealth over time. It’s not about timing the market but about time in the market.

How often should you invest?

The frequency of your investments can depend on your financial situation and goals. Common intervals include:

  • Monthly: Ideal for those with a regular paycheck. Investing a portion of your salary each month is simple and effective.
  • Bi-Weekly: For those paid every two weeks, aligning investments with paychecks can be convenient.
  • Quarterly: If your cash flow is less consistent, quarterly investing might be a better fit.

Dollar-cost averaging

One popular strategy for regular investing is called dollar-cost averaging (DCA). This means investing a fixed amount of money at regular intervals, regardless of the market’s ups and downs. By doing this, you buy more shares when prices are low and fewer when prices are high, which can average out your costs over time. It takes the guesswork out of investing and reduces the risk of making poor decisions based on short-term market fluctuations. It also means you get your time back to enjoy your life, instead of worrying about the trends in the market.

Case study: dollar-cost averaging with historical data

Let's look at a study1 using historical data to illustrate the effectiveness of dollar-cost averaging (DCA). Suppose you invested $2,000 annually in a hypothetical portfolio that tracks the S&P 500 Index over 20 years. Here are the results:

  • Best Timing: Perfectly timing the market each year to invest $2,000 at the market's lowest point resulted in a significantly higher ending amount.
  • Worst Timing: Investing $2,000 annually at the market's highest point each year still led to substantial growth, although not as high as with perfect timing.
  • Dollar-Cost Averaging: Consistently investing $2,000 annually, regardless of market conditions, resulted in an impressive total, nearly matching the best timing scenario.

The DCA approach proved to be highly effective, minimising regret and avoiding the pitfalls of market timing. The study also emphasised how difficult it is to perfectly time the market, as accurately predicting market bottoms and peaks is nearly impossible for most investors. DCA can be a powerful strategy for long-term investors, providing substantial growth and reducing the risk associated with trying to time the market.

Match your pay schedule

A practical way to decide how often to invest is to align it with your pay schedule. If you get paid monthly, consider setting up an automatic transfer to your investment account each payday. This way, you’re consistently investing without having to think about it and it fits seamlessly into your budget.

Reinvest your earnings

Another tip is to reinvest any earnings or dividends your investments generate. This can be done automatically through many investment platforms. Reinvesting helps your money grow faster thanks to the power of compounding, where your earnings generate their own earnings over time. The share market on average returns 7% per year, but for those who reinvest their earnings, this number often sits between 8-10% - that’s why you’ll hear people say the share market returns 7-10% annually.

Review and adjust

While consistency is important, so is flexibility. Life changes, and so may your financial situation or goals. Review your investment plan regularly—at least once a year—and adjust as needed. Maybe you got a raise and can invest more, or perhaps you need to scale back for a bit. The key is to stay engaged and make sure your investment plan still aligns with your goals.

Start small, grow big

If you’re just starting out, don’t worry about investing large sums of money. Start small and gradually increase your contributions as you become more comfortable. The most important step is to start. Even small amounts can grow significantly over time.

Final thoughts

There’s no one-size-fits-all answer to how often you should invest. The best approach is to find a schedule that works for you and stick with it. Regular investing, whether through dollar-cost averaging or aligning with your pay cycle, helps you build a solid financial foundation. Remember, the journey to financial success is a marathon, not a sprint. Keep planting those seeds, stay consistent, and watch your wealth grow over time.
 


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This content is brought to you by Girls that Invest.