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Membership services seem to be the sweet spot for attracting new customers and building customer loyalty. For $ 10 a month? Get all the streaming music you want. Another $ 20 per month? Here is access to a library of working videos. Why should your mind be different when it comes to investment offerings?
After all, some of the same tenets that make membership services so appealing to customers can be revealed by an automated investment strategy. Barb Renner, vice chairman and director of U.S. consumer products at Deloitte, says the most successful membership services are those that meet a basic need, are customized and offered in the most convenient way possible. .
“You’re glad it’s there, because it’s easy. And it’s paid, and it shows, and you never have to worry about it, ”Renner says of the best membership offers.
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Imagine looking at retirement savings in the same light: Customize the subscription now, put it down and forget it. Then when you need it later, it’s right there waiting for you.
To be clear, this type of investment is not new. Average dollar cost, as is well known, means regularly adding to your investment account on a fixed schedule, and has been an effective way to build up savings over time while reducing it. the effect of variability. If you participate in a 401 (k) retirement plan or other workplace, it is likely that you are already doing this.
“This approach has several benefits,” says Mark Clure, a certified financial planner and principal at Enso Wealth Management in Mount Shasta, California. “It offers the same facility as a membership service. Once established, it happens automatically and requires no further investment from the investor. ”
Benefits of ‘investment membership’
Seeing investment as a subscription can take the feeling (read: emphasis) out of investing, which has a number of implications.
When you place an amount based on a fixed schedule, it is inevitable that you will buy into the market at different prices. Yes, that means you may be buying when prices are high, but it also means you get a grip on contracts when prices fall. Over time, this settles your average cost with no work on your behalf. In other words, don’t worry anymore about buying in at the wrong time.
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There is another upside, but for Clure, the biggest benefit of this “membership” approach is that it could help investors stick to their plan no matter what happens in the markets.
“If we face it, we as a people tend to want near-term market direction and invest accordingly. The problem is that we are so often misled, ”says Clure. “And when we do, our choices often undermine our plans. A regular average dollar cost strategy can avoid these destructive actions. ”
The easiest way to do this is to set up weekly, bi-weekly, monthly or quarterly recycling investments at an amount that’s right for you, just as you automate the cost of streaming music, delivery of pet food, boxes beauty or shaving tools. Most online brokers and robo advisors, including the winners of the NerdWallet Best Prizes for 2021, allow you to set up regular contributions into your investment account.
The downside is this approach
If you happen to have a large lump sum of money – say, a legacy or a bonus – there is a case for investing the full amount as a lump sum, as long as you have a long investment timeline. Spreading out these donations could limit your return, Clure says.
“The only benefit of an average dollar cost plan is that the market is rising more than it is falling, making prices higher in the future,” Clure says. “As a matter of fact, a lump sum investment should be considered if your money is available and you understand the risk.”
How much does this ‘membership’ cost?
When deciding how much to invest through the average dollar cost, the fact is that nothing is far better than nothing, and a quicker start is better than later. That’s because complex yields are increased even further when repaired with regular donations.
For example, if you invested $ 1,000 today without monthly contributions, it might be worth about $ 1,300 in five years if you earn an average annual return of 6%. But if you add $ 50 a month to that first investment, it might be worth nearly $ 5,000 at the end of five years. Try an investment calculator to see how the numbers and timelines work.
For the latest mobile investment strategy, consider investing these recurring investments in a broad stock market trading fund or mutual funds. Of course, this means you also don’t have to think about what you should invest in – these funds will help you quickly build a mixed portfolio.
Learn more at: MarketWatch and Learn, how to buy stocks, bonds and more
Since you are likely to invest small amounts, look for mutual funds and indexes with low or lower rates, or choose ETFs, which can be purchased for a possible share price. be below the minimum for mutual funds. If you decide to invest in individual stocks instead, look for a breakout that offers limited shares, which allows you to buy a portion of stock rather than an entire installment. Without restricted shares, you are likely to have no investment left over with each donation.
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Chris Davis writes for NerdWallet. Email: [email protected].