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.
- 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.