Sense (Dollars & Cents)
By Yvonne Volante
It's no secret that the market goes UP...the market, goes DOWN. That's the
basics of Investing 101.
For many of us the shape of the market day to day has about as much
influence on our lives as the time of the tides that day. But for investors -
especially first time investors - it can be a rollercoaster of heart racing
highs and stomach churning lows. Every movement is being carefully reviewed and
if it turns down then investors with itchy feet jump out.
If you know the benefits of investing, how can you avoid the stress of
putting your hard earned money into the market?
Financial planners and investors are quite clear on the subject. New
investors should not make an investment unless they are going to let it sit at
least 5 to 7 years - the longer the better.
Well, the economy DOES move up and down, but we have never seen it bottom
out (and if it did - well, you'd have much bigger concerns than your
By selecting a diversified portfolio, such as a mutual fund, you can usually
base your prediction on past activity and you'll see that in any 7-15 year
period the investor always came out with more than he put in.
How do you take advantage of that? When should you invest?
Well, if shares were being sold for $10 each and you had invested $100 you
would have purchased 10 shares. Now, if that is your whole investment you would
be very upset if the value went down to $5, wouldn't you? Now your stock is
worth $50. What would you do? Sell before it goes lower and loose $50?
Using the 'Cost Averaging' technique:
Cost averaging means you continue to put the same amount of investment into
the market regularly - preferably every month. Now if you did that you would
have invested another $100. At $5 a share you would buy 20 shares. Right now you
have invested $200 but only own $150 worth of shares.
What happens when the price goes up?
When the price goes back up (and it will) it may stop at $8 per share. Now
what? Well, you invest your next $100 and buy 12 shares.
You now have 42 shares valued at $8 each. That totals $336. Your investment
was $300 so you just made 12% off of your investment.
Combining the cost of averaging with the 10% recommended for us to set aside
for savings or investment - what's stopping you from jumping in?