There often two times when people think about investing , and that either when they do not have any money, or when they come across a lump sum of money. These are two contrasting financial circumstances but they have one thing in common, they are both not the most ideal times to make “investing decisions”. Why? , when you have no money, you set unreasonable expectations on what returns the market can deliver, and when you have a lump sum of money, you take the market for granted and things like risk management and due diligence are compromised and bad investments are chosen. Also when you invest a huge lump sum of money the whole transaction may be compromised by anxiety and regret because of this you are not able to objectively canvas the market.
So what is the best way to build and scale an investment portfolio? The short answer is with automated investing.
” You should buy stocks the way you buy grocery, and not the way you buy perfume” – Warren Buffet.
This quote really sums up my sentiments. Ideally you should be investing in the stock market weekly, but the more practical option is monthly. So after you have paid yourself (by put away your saving) , you can proceed to pay your future self, by automating your investor
Most brokers give investors the opportunity to make monthly deposit towards the investments of their choice. This is great and I highly recommend utilising this feature, and I recommend starting small and building from their. Regardless of your income source, I always suggest starting with a R100 or R500 month deposit towards a single investment(s) and then increase this amount gradually as you get used to having an automated investing system. So for example, you can start off with a R500 debit order every month that allows you to buy stocks in Apple, and have another R500 debit order to purchase stocks in Sasol, and a third debt order of 500 to invest in your GoldEtf. Through monthly deposits you will be able to steadily and constantly scale and build your investment portfolio. The benefit of automating your investing is that you create a process of consistency and consistency is critical for success not just in investing but also in life.
But, I am confident and I want to invest my bonus, or my inheritance or all my savings into the market? I write most of these articles for beginner to intermediate investors , so when I say this I mean it with the at most respect – you are not confident enough to do that. Unless you have been investing for a while , committing your money to the market is a very daunting process for many people. I have seen people buy stocks on Monday 10 am , and sell those stocks the same day just before the market closes. Once your money is tied into investments, based on your experience with the markets, anxiety and the fear of losing all your money can lead you to doing a lot of irrational things. Building a R10 000 investment portfolio over ten months through R1000 monthly deposits can be a lot less nerve recking than investing R10 000 directly into the market. This is just an example and could apply with any amount such as building a R1 000 000 investment portfolio, and even a R 1 000 000 000 portfolio, because this is also how the professionals do it.
So what do I do with my lump sums of money, I do not want to spend it all? My personal recommendation is to portion your lump sums and distribute them across a fixed saving account , and investing account that you select under the consultation of a financial advisor. A money market fund is a good compromise between the two because it carries similar risk to a saving account, but offers higher returns. Also the money cannot be spent whilst in a money market fund. To learn more about money market funds have a look at the following link ().