Systematic Investing: 
A Simple Way to Build Your Nest Egg
By Janet Hill

We’ve been told our whole lives that in order to build our nest egg, we have to scrimp, save, and sacrifice. But these days, believe it or not, saving for your retirement is a lot easier and more pleasant than it sounds.

It’s accomplished through systematic investing. Thanks to the ease of electronic banking and fund transfers, you can build your retirement savings without even thinking about it. Each month—or each paycheck—money is taken out of your bank account and invested into your retirement account. That’s it. All you have to do is authorize a transfer arrangement. Your money literally invests itself, which gives this method of investing some pretty impressive characteristics, including:

·       Powerful. Every little bit helps. Thanks to compounded interest, even small monthly investments can grow to substantial amounts over time.

·       Disciplined. The automated process takes the worries and emotions out of investing. You don’t have to remember to send a check or watch the market. Turning investing into a regular habit gives you a long-term outlook, and you may become less nervous with every downturn in the market.

·       Sound. You pursue your goals a lot more effectively with a measured, constant approach. Plus, you don’t have to worry about market timing and following the crowd.

·       Affordable. You don’t need to invest a lot, depending on your retirement account goals.

Look at it another way. When you invest one lump sum of money on a sporadic basis, you tend to think “buy low, sell high.” You wait, and wait, and wait for the right time to put your money into the market so you can get the most for it. But the waiting can take a while, and while you’re waiting, your money isn’t working for you. And then, when you finally do put your money into the market all at once, you run the risk that your investment’s value could drop sharply due to a market decline. This might be more risk than you are comfortable taking.

But when you invest regularly and systematically over time, you don’t have to worry about this. You can take your lump sum and divide it into equal amounts during the course of a year. The money gets invested at regular intervals over a longer period of time. So if the market drops right away, you will have suffered a smaller loss. Next time, you may be able to buy more shares at a lower price, depending on the market. Your investment buys a greater number of shares than if prices rise. Over time, this may reduce the average cost per share that you pay. This concept is called dollar cost averaging (DCA).

Like any investment strategy, however, both DCA and systematic investing have risks:

·       If the market’s path is upward, you may have “non-buyer’s regret” for not investing all of your money at once when share prices were lower.

·       Neither DCA nor systematic investing can guarantee you a profit (no investment method can), nor do they protect against a loss in a declining market. 

·       Systematic investing involves continuous investment in securities regardless of fluctuating prices. You should consider your financial ability to continue purchases through periods of varying price levels.

Of course, your financial professional is the best person to talk to for help in deciding if these methods are right for you.

Janet Hill is a financial consultant practicing in Salt Lake City, Ut. She offers Wealth Management and Safe Money Options as a registered representative of Commonwealth Financial Network—a member firm of the NASD/SIPC. She can be reached at 801-269-6749.