2 months ago, I decided to start again with our monthly investing. I am convinced that investing each month your salary surplus is the best way for the long term. And I have to admit: it is easier than it sounds. Our emotions screw up the plan easily!
Why this post?
Now that the markets are again reaching new records, That little voice in my head is there again… WAIT FOR THE CORRECTION… And that is wrong. Next Wednesday or Thursday, I will put in again my monthly buy order. this article should help to get my act together and just do it!
We are able to organise our life in such a way that we can pay our self first each month. We have a fixed monthly living budget, including fun money. Everything else that we earn on top of that goes to investing.
The question now becomes how and where to invest that money.
Having read a lot of articles and books on the topic, 3 years ago I decided that investing in ETFs was the best way for us to invest our money. Other people make other choices: that is fine, it is personal finance after all. we all have a different view on what risk is, we have a different asset mix and different goals.
Investing with ETFs
Step one in investing with ETFs is fixing the asset allocation and the exact ETFs that you want to use. A lot of this is driven by your countries tax regime. On top of that, I wanted it to be global and simple.
Being a Belgian tax payer, I decided to go with Irish accumulating ETFs that are not registered in Belgium.
For me personally the best way to reach my goals is the following combo
- IWDA for global exposure in large caps
- CESL to add EU small caps to the mix
- EMIM to make sure the Emerging region is covered as well
On the internet and Boglehead forums, other mixes are available. Some go with vanguard funds out of the USA. Do your research and make your mix.
Monthly investing with ETFs
When you set aside money each month to invest, it should be logic to invest each month. However, there are some considerations
- Look at your trading fees vs. the amount if money that you invest. When you have to pay 6€ for a trade and you only invest 500€, than you have a 1,2% that you loose from investing. In that case, maybe look for another cheaper broker (maybe one with free trades) or invest only every 2 or 3 months.
- Do not try to time the market. I have experienced first hand that having the money on my trading account is no guarantee to actually invest it. Often, I would log on and enter a trade a few cents below the market, hoping to get in at a lower price. This is FOOLISH! You can not time the market. And then be forced to buy at a higher price the next day.
- Do not try to time the market (Yes, it is repeated on purpose). Another pitfall is to pile up the money and wait for another correction to come. There is ample research that indicates that this is not a good strategy. The best time to invest is as soon as the money is available. Waiting for another 2008 market correction can take a long time. Some people are waiting already 4 years.
Understanding the process and ideas behing monthly investing
Before jumping into this kind of investing, you need to understand some of the principles behind this.
- This is a buy-and-hold investment strategy. It implies that you do not sell in the event of a bear market or a crash. Easy to say, difficult to do. What if you have a 100K portfolio, that drops to 50K. Will you keep your hands off and keep investing? Or will you sell? Headline in the journal will be like this: (WSJ Sept 18 2008)
Worst Crisis Since ’30s, With No End Yet in Sight
- This kind of strategy assumes that the world economy will always recover and go up. Do you believe this? It has been true for most markets. You have to be aware that there are exceptions… (Japan, Italy). When you look at the S&P500, it has been a lot of fun.
14 thoughts on “Monthly investing in ETFs”
CESL looks really interesting, I never thought of buying small caps before. How much in % of your ETF portfolio is this one? I personally have CSX5, but only 10%.
Cesl is 20 pct of my etf portfolio
Being a long scope investor I give for granted at least 2 or 3 market crashes before i devest everything or I pass on the stick to my wife/son/ whomever will be there. This makes totally useless the prediction of when the crash is going to happen, because if I believe in the economic theory that regulates the market I need to be aware that a crash will happen as economy expands and contracts in cycles. Timing the market is quite pointless because I have heard about market crashes and high valuations since I started investing in my Long Haul Portfolio 3 years ago, let’s say that I am not cashing in the capital gains, but the dividend stream would have been lost, we are talking a good 10% gain there… Investing little by little can be a solution to average the eventual crashes, it increases costs and I am not overly happy with that, but I am considering to add some ETFs too to my portfolio, and if I get to do it I will certainly invest bit by bit (like you do), regardless of valuations and market conditions, as it seems the most sensible strategy for a long run portfolio. If I ever have kids I’d love to set up a sort of “saving account” invested in this way, as time is on their side and normally letting time pass is a strategy that “pays” (in many aspects of life)…
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Not trying to time the market…totally guilty. Usually I invest I come up with a value I think has a good margin of safety, and if the stock is trading around that, I am sometimes tempted to put my bid in at a slightly lower price, effectively only gaining 1-2% … the common down side is the stock rises, I buy higher and then in the following weeks, the stock hits my original bid. I should either be patient or just accept the market offer…
I’m not sure though that Japan isn’t recovering though. Despite the ageing population there, the NI225 is up considerably since 2008 though one has to concede, not at all since 1987. Since the 50’s it’s up 200x.
It definitely is the best approach for most people! But boring …
Boring is mitigated by option trading!
I’ve been waiting for a market crash for a long time now. I do take small positions in stocks that I like and where I’m sure I don’t overpay and have good dividend income (Mainly small international stocks currently). But you are right. The last 2 years I’ve also started dollar cost averaging in some funds and ETFs and have wished I did it sooner and allocated more cash to it. Great post by the way and boring is usually best! No Tesla’s for me. Would like the car though…
The car is beautiful… Maybe a Tesla 3 one day
under the announced Belgian tax regime, the first couple of hundred euro’s in dividends will be tax free. Under these circumstances, I was planning to accumulate some distributing ETFs until that basket is filled. From then on, better to invest in capitalising ETF’s indeed. I have a hard time investing irrespective of valuations. Buy-and-hold always looks best right before the crash. And indeed, this applies since a couple of years, but still, will you have the stamina not to sell if the crash comes; how long will it take to regain the lost ground (back to zero)? I do invest but very cautiously and with smaller amounts and spread out in time. One should also consider the total asset mix. You mentioned earlier that you have some sleep well insurance products and mixed funds. Considering that, you could indeed have a certain percentage in more volatile stocks. Anyway, food for discussion
That is a good question: will I hold when the market crashes? Only time will tell. I do regular investing and there are enough studies that show it is the best way to get good results.
Given our mix of assets, I do hope to sleep well in the next crash and to have the courage to deploy even more cash.
If is simple and boring => is for me :D.
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Great article discussing long-term approach to investing. It’s something that anybody in the world could do, yet investing and wealth seem so foreign for so many people. Feel free to check out some of my posts, as I try to break down investing in simple terms, in order to help beginners get started.
Do you invest in ETFs alone? Have you considered P2P lending?