By Allison McDonald-Sordo TD Waterhouse Private Investment Advice
The secrets of success in investing are many and varied. But one of the most important is to make regular contributions. Regular investing, especially if you decide to invest bi-weekly or monthly enables you to take advantage of two powerful tools: dollar-cost-averaging and compounding.
Dollar-cost-averaging is a regular investment strategy where you make investment purchases of a fixed amount on a bi-weekly or monthly basis. The strategy protects your portfolio by encouraging you to invest consistently, allowing you to buy more shares when the market is falling and fewer shares when the market is rising. In the end (assuming markets increase over time), your cost per share is lower than the average price per share.
Compounding is one of the most effective money making devices around. With compound interest, you earn interest on both the principal (the amount you save) and the interest that principal produces. In other words, this means that an investment of $300,000 earning simple interest at 6% annually would deliver $36,000 after two years. With compound interest that same 6% would deliver $37,080. Doesn’t sound like much? Wait. After three years at simple interest you get $54,000. With compound interest, you get $57,305. And, as the years progress, the compounding effect multiplies.
The next move is to get started. He or she who hesitates is lost. Talk with an investment advisor and establish a strategy that maximizes your regular monthly contributions. And that is where your investment advisor has an invaluable role to play. Keeping your investment strategy consistent with your personal needs is vital. And your investment advisor can help you do just that.
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