Set Up Automatic Investments

If you are like most people, you don't like to make decisions. It's hard! And there are so many other issues that need your attention. On top of that even if you commit to investing $1000 - or $50 - each week, sooner or later, some week, the U.S. president or the chairman of the Federal Reserve is bound to say something negative or the monthly jobs report might be underwhelming or oil prices spike up or war breaks out somewhere in the world or there are many layoffs or there might be a new pandemic - or whatever. It will take enormous discipline to tune out the noise and click on that buy button with any regularity. Much more likely you will consider waiting a week or two - till the news improves perhaps. Now you're back to trying to time the market and that never works.

Instead, set up automatic transactions. All brokerage firms will let you set up - in a few minutes online - what are called Automatic Investments. All you have to do is to pick a dollar amount you're comfortable with, specify frequency or schedule, and the symbol of the index fund you wish to purchase. This can be weekly or bi-weekly or monthly or quarterly or the 1st/15th of each month - it's really up to you. Once you set it, you forget it and as and when scheduled, the trade will execute and you'll get your email notification. There's nothing more you need to do. You free yourself of the burden of making (oftentimes hard and seemingly counterintuitive) decisions with your money every week or every month.

If you believe that the stock market will go up in the long term - and this is both true historically and the key thing you have to have conviction in - a dip in prices is actually a buying opportunity! Except, human psychology especially as it relates to money will lead to you to want to exit rather than enter the market during a dip. Loss aversion is an incredibly strong impulse.

Another phrase for automatic investing is called "Dollar Cost Averaging". The mathematically convenient thing with dollar cost averaging is that when the market dips your dollars will buy more of the index fund shares and when the market spikes your dollars will buy less of the index fund shares. Over time it averages out but more critically you are now out of the loop of the tempation to sell or exit at a low as well as the temptation to double down or enter at euphoric highs.

So far it has been a lot of buying. What about selling? In 2021 the market went up over 28%! Should you have sold it all and booked a nice profit? I'd argue that, to compound your returns, you should be patient.