The Importance of ConsistencyBy: Michael Pryce, Investment Analyst Posted:
Investing can be scary, daunting, and hard to understand. “What do I pick?” and “When do I actually buy?” are common questions for young and beginner investors. This is especially difficult when investing in a volatile market with a mass of information to digest daily.
The key is consistency, picking a strategy, and being consistent in working towards that goal. However, how to go about this strategy is what investors will need to know.
Investing in Exchange Traded Funds (ETF)
If investors are unsure about what individual securities to purchase, one tried and proven method of investing over many decades has been to consistently purchase a basket of assets such as stocks, bonds, or commodities; and trade on a market exchange so they can be traded anytime like how stocks are traded. These are called Exchange Traded Funds (ETFs).
An Exchange Traded Fund (ETF) is a type of financial instrument that tracks an index, sector, commodity, or other asset and can be purchased and sold on a stock exchange as if it were a normal stock. Common ETFs track the major US indices such as the SPDR S&P 500 ETF (SPY) which tracks the S&P500 or the Invesco QQQ Trust (QQQ) that tracks the NASDAQ. ETFs can also be more specific and track subsectors of the market. These include the Technology S&P 500 ETF (XLK) and the Health Care S&P500 ETF (XLV).
The advantages of an ETF are lower costs, instant diversification, liquidity, tax efficiency, sector investing, the ability to purchase in small amounts, and the availability of a wide variety of alternative, investments.
These give investors broad exposure to hundreds of stocks while eliminating the effort involved with buying and selling individual stocks.
Dollar-cost averaging (DCA)
Dollar-cost averaging involves investing a fixed amount of money at regular intervals over a long period of time. This strategy involves purchasing stocks or ETFs, that can be volatile, regardless of the asset’s price and at regular intervals. This strategy aids in reducing the impact of price volatility and trying to time a perfect buying opportunity.
Dollar-cost averaging is particularly attractive to new investors just starting out and for those investors lower risk tolerance.
Investing for the long term is never easy and has become a lot more difficult in the current environment. It requires discipline, patience, and strategies that have proven over time to provide the best risk-adjusted returns to investors.