Monthly investment plan in stocks
Monthly investment plan in stocks
If you want to start building your investment portfolio and are looking for some monthly investing methods in stocks, here's what you need to know now.
When it comes to investing, the question of how much you can invest to build your wealth and earn your first million dollars is often the golden question. Whether people like it or not, the short answer to this question is that it depends on a lot of things.
Although there is a lot of advice regarding how much to invest monthly in stocks for the purpose of building wealth, one of the most often repeated suggestions (with good reason) is to start investing as soon as possible. Young people may be just beginning to spread their salaries across rent, student loan debt, an emergency fund, and their social life, but they also shouldn't put investment at the bottom of the list.
Monthly investment in stocks
40 year long term plan
Brian Stivers, financial advisor and founder of Stivers Financial Services, was asked about the correct way to calculate exactly how much money a 25-year-old investor should invest each month to become a millionaire.
Stivers explained that when it comes to investing, there are three very important components: the amount you contribute per month, the rate of return, and how long you have to save.
When analyzing the numbers, Stivers used three different rates of return and used a retirement age of 65, giving 25-year-olds 40 to reach the million-dollar goal. This is what we found:
Any 25-year-old investor who makes 3% annual returns must invest $1,100 per month for 40 years to reach $1 million.
If instead he made investments that yield an annual return of 6%, he would have to invest $530 a month for 40 years to reach $1 million.
But if he chooses more aggressive investments that yield an annual return of 9%, he will only need to invest $240 per month for 40 years to reach the $1 million goal.
20 year plan for monthly investment in stocks
With a 20-year investment perspective, you are a long-term investor. You can place your money in the stock market directly or through mutual funds that contain shares. The value of your investment may fluctuate in the short term, but over a longer period of time, your average return will be higher than what other safer options can offer.
Your mutual fund or individual stock might go up 11% in one year, or it might go down 6% the next, then go down 9% and so forth. So it is definitely a more difficult journey than safe and predictable options, such as a savings account or certificate of deposit. However, after 20 years, you are sure to make really real returns in your account.
Safety has a price, but risk gives you a premium. Since you don't have to lose sleep due to a stock market crash in a given year, you can reap the premium because the long run eliminates most of the risks.
Here are some 20 year monthly stock investing strategies for $100 that you can consider:
Average cost in dollars
With an average dollar cost strategy, the investor allocates a fixed amount at regular intervals regardless of other conditions. A classic example of this is a retirement account. Dollar averaging is a strategy often used by long-term investors.
If you invest a certain amount each month, you buy shares in good times as well as in bad times. And in good times, the value of your shares increases. For example, let's say you start buying shares in a stock fund at $20 per share and decide that you will invest $100 per month. This means that you will get five shares for $100. A year later, the fund has done well and the stock price has gone up to $25. Now you'll only get four shares for $100, but you're happy anyway because the value of the five shares has gone up from that first month last year, so 5 x $25 = $125. This means that she made a gain of $25.
In the second month, the shares were worth $21, so in that month I got 4.77 shares, made a profit of $19, and so on. In good times, you get fewer shares, which reduces potential upside in the future, but it also means that you have a good overall return on your investment.
Let's say the stock price drops from $20 to $15 in that first year. Here it would mean that you incurred a loss of 5 x $5 = $25 on your first month's investment. In the second month, you bought shares at $19 apiece, which means you got 5.26 shares. The loss from the second month will be 5.26 x $4 = $21, and so on.
While this loss is certainly snappy, you get shares at a discount from the initial purchase price and eventually get more shares for your $100 monthly investment. Since the share price is only $15, you can snap up 6.67 shares per month as long as the recession continues. When things get brighter after six months, you will have bought 6 x 6.67 = 40 shares. Then, even with modest dips to $18 a share, you'll now have made a profit of 40 x $3 = $120 shares of the deal alone. Meanwhile, the loss will have reduced from the first month to $10, and from the second month to just over $5 and so on. This means that you will be ready to make a profit and get rid of a loss. When the stock price returns to the original level of $20, you will then be able to eliminate the initial loss while the six-month bargain stock gain will grow to 6 x $5 = $200.
If you stay calm and stick to the plan even when the market is down and you keep investing in stocks monthly, you will get more shares for your money. These additional stocks boost your investment returns when the market bounces back. This is a big part of the reason why common stock investors get a higher long-term return compared to other safer investments despite the temporary ups and downs in the market.
Investing in dividend stocks
Many stocks and funds also pay dividends to investors. Dividends are basically dividends given to owners (shareholders), and they provide an additional 2 percent return on top of normal stock price increases. Most mutual funds and stocks offer the option to automatically reinvest dividends. This is done in good times as well as in bad times, which means that with your dollar cost averaging strategy, these distributions will be an invisible boost to your regular investment schedule.
Note: Profits from assets are reinvested to earn more profits; Where profits are usually made because the investment generates profits from the original dollar amount and the accumulated profits from previous periods.
Let's say you decide to invest in a mutual fund with an average annual return of 7%, including dividends. For the sake of simplicity, let's say the distribution occurs once a year. After 20 years, you will have put 20 x 12 x $100 = $24,000 into the fund. However, the compound return will further multiply your investment. The easy way to calculate the numbers is to use a calculator, but you can do the calculation manually by adding the new year's contribution to the old total and then multiplying the new total by 1.07 for each year.
Year 1: $1,200 x 1.07 = $1,284.
Year 2: ($1284 + $1,200) x 1.07 = $2,658.
Year 3: ($2,658 + $1,200) x 1.07 = $4,128.
Note: As the amount invested increases over time, your range of investment options expands, allowing you to have a more diversified portfolio.
What you should remember
In fact, your annual statement will not be as neat as any calculator can predict. For starters, the math is usually too simplified to take into account any of the fees and taxes you have to pay. There is also plenty of wiggle room in how to calculate the averages that go into the equation. However, history shows consistently higher returns for regular investing in stocks or stock funds than other types of investments, making it the perfect choice for the long-term investor.
An amount as small as $100 leaves few options besides mutual funds or ETFs, at least at first. Many brokers charge you a transaction fee when you buy shares. Unless you are investing in risky stocks, this means that you will not be able to diversify your portfolio. By contrast, mutual funds are prepackaged portfolios of many different stocks with a clearly defined risk profile and internal diversification.
However, the mutual fund charges an annual fee that can grow to a fairly large size as your capital grows. If you are comfortable taking a more active role in choosing your investments, it may make sense to withdraw funds from the fund after a few years and create your own diversified financial portfolio with a reliable brokerage firm of your choice.
The long-term investor has a time horizon of at least 20 years; This time frame enables them to avoid playing it safe and take instead calculated risks that could eventually pay off in the long run.
Dollar cost averaging is a smart strategy for long-term investors because it involves setting a specific amount per month to invest in stocks on a regular basis, often monthly, regardless of market performance or the strength of the economy.
Buying stocks and funds that provide dividends is another good technique for a long-term investor, as is the case of automatically reinvesting those dividends.
Compounding is a huge advantage for a long-term investor, with asset earnings being reinvested to earn larger profits over time.