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5 Key Tips to Increase Your Investing

graph-163509_640Often when I talk to people about investing, I am surprised by the number of people who say they can’t afford to invest. The reality is you can’t afford not to. Investing wisely both protects your money and allows it to grow. For example, the average of the S&P 500 over the past 12 months has been around 17-18% while most bank accounts offer you below 1%, which doesn’t even keep up with inflation. With a plethora of options for investing using online brokers, as long as you don’t trade frequently (which an Intelligent Investor should avoid anyway), you can turn a profit even with a small amount originally invested.  Here are some key tips to help you increase the amount you invest.

1. Research and be realistic.

First decide what your goal is. Are you saving for a new home? Retirement? Decide how much you’ll need and then break that down into smaller chunks and determine what you’ll need to be putting away now to make that happen. Keep in mind the risks you can afford to take when investing and assume you’ll average about 10% return per year, while also being aware that the market is never predictable.

Next, decide how realistic your goal is. If the goal you’ve set for yourself in the future means you’d have to save way more than you can afford now, set a more manageable goal. While you shouldn’t give up on your ideal goal, setting a realistic starting point will give you confidence to keep investing and allow you to increase your investment over the years.

2. Know what you’re spending.

accounting-57284_640Take one month and track everything that you are spending. Don’t judge yourself and don’t cheat. This isn’t about being perfect, this is about awareness. When you know how much you are spending you have the opportunity to decide if you are ok with that number and give yourself the power to make changes. You may find that you are spending more than you feel comfortable on certain things or perhaps you’ll find that you’re fine with your spending. Either way, knowing exactly where your money is going gives you the ability to feel confident with your finances and make any changes if necessary.

3. Make changes gradually.

Start by designating a monthly amount to invest as well as an amount to increase by every month. A $10 increase in investing every month is small enough that you won’t feel the change, but after only ten months of increases you’ll be investing $100 more per month than before. Setting this up through automatic deposits to your investment account can help make this process easier.  Additionally, after you know how much you are spending (see #2), you can decide where you want to reduce your spending and use that money instead to invest.

4. Use all your opportunities.

When you pay off your car, credit card, student loans, etc. designate that same amount to investing. You haven’t had that money available for spending and as a result it will allow you to increase your investing with ease. The same is true for all increases in income as well such as raises, inheritances, tax refunds, etc.

5. Start NOW.

Statistically, the sooner you start investing, the greater amount of money you’ll have when you reach your goal date. While you might not be able to save as much as you would like right now, procrastinating means you’ll have to save even more later.

What other tips do you have for increasing the amount you invest?  Please share in the comments below.

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2 thoughts on “5 Key Tips to Increase Your Investing

  1. Very nice article – thank you! In the beginning you mention that intelligent investors shouldn’t trade frequently but in number 3, “Make changes gradually,” you talk about increasing the amount invested monthly by $10.

    What would you define as frequent trading? Is a monthly investment with an online brokerage like Scottrade, which costs $7 a trade, something that’s wise to do when investing with very small amounts of money? Is there a certain amount you would recommend to be able to invest if following the monthly investment strategy?

    Best regards,

    Matt

    1. Good Question, Matt. The main concern for value investors is that they shouldn’t be buying and selling frequently. Doing so makes you at greater risk for emotional decisions (which we discuss in our book club) as well as capital gains tax and potentially income tax if trades are made frequently enough.
      We have our online brokerage account set to transfer money at the same time every month from our checking account. Do we always purchase new stock right away? No. Sometimes it makes sense to wait until the next time we rebalance our portfolio or until there is enough cash to buy a specific stock.
      At the same time, it could make sense to make a monthly trade depending on the amount of money that you are able to put away each month and how long you plan to hold onto the stock. Furthermore, the $10 gradual increase is just a starting point. For some people it might make sense to increase by a higher amount, but even if you stick to the $10 per month increase, within a year you’ll be investing an additional $120 per month at which point the $7 trade isn’t as high a cost. Although, at 5.8% ($7/120) I would recommend holding onto the stock for a while to ensure your gains are not eaten by trading costs. Overall, you have to make the choice that is right for you, but small changes can be a great starting point.
      Thanks for reading the article and commenting! Please let us know if you have any more questions!

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