{"id":108742,"date":"2021-01-18T16:00:37","date_gmt":"2021-01-18T16:00:37","guid":{"rendered":"https:\/\/precoinnews.com\/?p=108742"},"modified":"2021-01-18T16:00:37","modified_gmt":"2021-01-18T16:00:37","slug":"want-to-invest-more-this-year-treat-it-like-a-subscription-the-denver-post","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/business\/want-to-invest-more-this-year-treat-it-like-a-subscription-the-denver-post\/","title":{"rendered":"Want to invest more this year? Treat it like a subscription – The Denver Post"},"content":{"rendered":"

This article provides information and education for investors. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities.<\/em><\/p>\n

Subscription services seem to be the sweet spot for attracting new users and building customer loyalty. For $10 a month? Take all the streaming music you want. Another $20 per month? Here\u2019s access to a library of workout videos. Why should your mindset be any different when it comes to investment contributions?<\/p>\n

After all, some of the same tenets that make subscription services so appealing to consumers can be mirrored by an automatic investment strategy. Barb Renner, vice chairman and U.S. consumer products leader at Deloitte, says that the most successful subscription services are those that meet a fundamental need, can be customized and are offered in the most convenient way possible.<\/p>\n

\u201cYou\u2019re happy it\u2019s there, because it\u2019s easy. And it\u2019s paid, and it shows up, and you never have to worry about it,\u201d Renner says of the best subscription offerings.<\/p>\n

Imagine viewing retirement savings in the same light: Customize the subscription now, set it and forget it. Then when you need it later, it\u2019s right there waiting for you.<\/p>\n

To be clear, this type of investing isn\u2019t new. Dollar-cost averaging, as it is known, entails making regular contributions to your investment account on a fixed schedule, and has proven to be an effective way to build savings over time while reducing the impact of volatility. If you participate in a 401(k) or other workplace retirement plan, you\u2019re likely already doing this.<\/p>\n

\u201cThis approach has several benefits,\u201d says Mark Clure, a certified financial planner and principal at Enso Wealth Management in Mount Shasta, California. \u201cIt offers the same convenience as a subscription service. Once established, it happens automatically and requires no additional action on the part of the investor.\u201d<\/p>\n

The benefits of an ‘investment subscription’<\/h2>\n

Seeing investing as a subscription can take the emotion (read: stress) out of investing, which has several knock-on effects.<\/p>\n

When you contribute a set amount on a fixed schedule, you\u2019ll inevitably buy into the market at different prices. Sure, that means you might buy when prices are high, but it also means you\u2019ll snag deals when prices fall. Over time, this smoothes out your average cost without any work on your part. In other words, no more worrying about buying in at the wrong time.<\/p>\n

There are other upsides, but to Clure, the biggest benefit of this \u201csubscription\u201d approach is that it could help investors stick with their plan no matter what happens in the markets.<\/p>\n

\u201cLet\u2019s face it, we humans have a tendency to want to guess the near-term direction of the market and invest accordingly. The problem is that we so often guess wrong,\u201d Clure says. \u201cAnd when we do, our choices often derail our plans. A consistent dollar-cost averaging strategy can help avoid those detrimental actions.\u201d<\/p>\n

The easiest way to do this is to set up weekly, biweekly, monthly or quarterly recurring investments at an amount that\u2019s right for you, just as you automate the cost of streaming music, pet food delivery, beauty boxes or shave kits. Most online brokers and robo-advisors, including the ones who won NerdWallet\u2019s Best-of Awards for 2021, allow you to set up regular contributions into your investment account.<\/p>\n

The downside of this approach<\/h2>\n

If you happen to have a large chunk of cash \u2014 say, an inheritance or a bonus \u2014 there is a case for investing the entire amount as a lump sum, provided you\u2019ve got a long investment timeline. Spreading out these contributions could actually limit your return, Clure says.<\/p>\n

\u201cThe only drawback to a dollar-cost averaging plan is that the market rises more than it falls, making higher prices likely in the future,\u201d Clure says. \u201cSince that is the reality, a lump-sum investment should be considered if you have the funds available and understand the risk.”<\/p>\n

How much does this ‘subscription’ cost?<\/h2>\n

When deciding how much to invest through dollar-cost averaging, the reality is anything is far better than nothing, and starting sooner is better than later. That\u2019s because compounding returns are magnified even further when paired with regular contributions.<\/p>\n

For example, if you invested $1,000 today with no monthly contributions, it might be worth around $1,300 in five years if you earn a 6% average annual return. But if you add $50 per month to that initial investment, it might be worth almost $5,000 at the end of five years. (Want to play around with the numbers and timeline? Explore our investment calculator.)<\/p>\n

For the ultimate hands-off investing strategy, consider putting those recurring investments into a broad stock market exchange-traded fund or mutual fund. In effect, this means you also won\u2019t have to think about what to invest in \u2014 these funds help you quickly build a diversified portfolio.<\/p>\n

Since you\u2019re likely investing small sums, look for mutual and index funds with low or no minimums, or choose ETFs, which can be purchased for a share price that may be lower than a mutual fund minimum. If you decide to invest in individual stocks instead, look for a brokerage that offers fractional shares, which allow you to purchase a portion of a stock rather than a full share. Without fractional shares, you\u2019ll likely have leftover uninvested cash with each contribution.<\/p>\n

More From NerdWallet<\/strong><\/p>\n