A lot of people make investing sound a lot more complicated than it really needs to be.
Sure, you can spend hours researching individual stocks, poring over mountains of economic data, and reading dozens of earnings reports. But you can also make it really simple. You can just invest in something like the Vanguard Total Stock Market ETF (NYSEMKT: VTI), which is a basket of roughly 3,500 U.S. stocks that charges an expense ratio of just 0.03%, and hold it forever.
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Regardless of which path you choose, everyone should follow some simple behaviors. They apply whether you’re already wealthy or just starting out. Whether you have decades to invest or you’re in retirement. They’re practices that simply involve discipline and a focus on building your wealth consistently.
The easiest way to build wealth is regular, consistent investing regardless of what the economy or the financial markets are doing. If you’re investing every month in a 401(k) plan, individual retirement account (IRA), or a plain taxable brokerage account, adding consistently to your portfolio is one of the best strategies.
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Why regular investing produces better results
Systematic investing (or dollar-cost averaging) means putting money into the market regularly regardless of price or conditions. When stocks are expensive, your money buys fewer shares. When stocks are cheap, it buys more.
Over the course of years and decades, that long-term pattern in most cases ends up lowering your total average cost per share compared to trying to time the market or only buying when stocks are rising.
This is important, because timing the market with any consistent success is nearly impossible, even for the professionals who manage big portfolios or investment funds. Investing regularly into a workplace retirement plan like a 401(k) can help remove the temptation to buy and sell at inopportune times. You don’t see it as a checking account deduction or anything. It’s simply happening behind the scenes.
Downturns are where the strategy pays off
The real test of your resiliency will come during a correction or bear market. That’s often when people do the most damage to their portfolios.
But as Warren Buffett has said, “Be greedy when others are fearful.”
Consider this: The S&P 500 (SNPINDEX: ^GSPC) dropped more than 50% from its October 2007 peak to its March 2009 low. A lot of investors will focus on the fact that the index didn’t hit another all-time high until roughly four years later. But if you instead focused on your ability to pick up more shares at lower prices, you’d quickly realize that you were buying stocks at prices that haven’t ever been seen again.
