Intro
What is regular investing?
It is the practice of investing smaller amounts regularly over a long period of time for savings purposes. This is also called as a dollar-cost average strategy.
When you would like to start investing, it's really important to create and stick to your investment strategy. Regular investing can be an easy and very powerful strategy.
As Warren Buffett said, "Compound interest is the eighth wonder of the world.", and there is an important truth in that. Let's imagine that you put $100 monthly into S&P 500, starting at the age of 19. If we calculate a 10% annual return (which is the average in the last more decades), then see how much your investments would be worth at the different ages.
Calculating investment return
Investment options
The most typical asset classes people use for regular investments are ETFs, stocks, and bonds.
What are ETFs?
ETF or exchange-traded fund (ETF) is a basket of securities that typically track an index, commodity, sector, or other assets. For example, if you invest in an S&P 500 ETF, you invest in the 500 biggest companies in the United States.
If you would like to learn more about ETFs, any of the articles below could help you:
- What is an ETF?
- What is an ETF portfolio?
- What is the ETF expense ratio?
- Difference between mutual funds and ETFs
- How to choose your ETF?
What are stocks?
Stocks represent ownership in a company. If you invest in a stock, you would benefit from the stock's future growth and dividends.
If you would like to learn more about stocks, any of the articles below could help you:
What are bonds?
Bonds represent an obligation/debt. Bonds are typically issued by governments and corporates. You, the investor, lend money to a government or a corporation and receive regular interest payments in return until the bond matures and you get your money back.
If you would like to learn more about bonds, any of the articles below could help you:
How to do regular investing
Now you know why regular is beneficial and what investment options you have. Now, let's see how to do regular investing through an ETF regular investment example.
1. Select your ETF
We decided to invest into S&P 500 ETF. The S&P 500 historically averaged around 10% annual return.
There are so many S&P 500 ETF, so how do we decide which one to choose?
- It's prefectly fine to go with the most popular ETF providers, like Vanguard, BlackRock (iShares), or Fidelity.
- We would like to choose an ETF that is denominated in USD.
- Some ETFs that satisfy these requirements if you're a US customer: SPY (SPDR S&P 500 ETF Trust), IVV (iShares Core S&P 500 ETF), VOO (Vanguard S&P 500 ETF).
- Some ETFs that satisfy these requirements if you're an EU customer: CSPX (iShares S&P 500 ETF), VUSD (Vanguard S&P 500 ETF), SPY5 (SPDR S&P 500 UCITS ETF)
2. Open a broker account
After you decided which ETF you want to buy, you have to find a good online broker. Brokerchooser will help you here: get a free recommendation by answering a few questions, or read further to get a general broker recommendation.
3. Deposit money
In order to buy and sell ETFs online, you need to have money in your investment account.
Minimum deposits can be as low as $20. At some brokers, you can buy fractional shares, so if for example one Amazon share is priced over $2000 and you only want to invest $500, you can still do it. You can find here a list of brokers for micro investing.
4. Buy the asset
You have the target, the account, and the cash. The last step is to push the buy button. You log in to your online trading platform, search for the ETFs you wish to buy, and click buy. When placing an order, you can choose from different order types.
5. Monitor your positions regularly
You are done, your ETFs are bought. Now it is key to monitor your investments. If you bought the ETF for holding it for a longer term, you might check it on a monthly or yearly base.
