I have a son who is three years old. Every month, we set aside $100 to contribute towards his college savings.
I have a daughter who is five years old. Every month, we set aside $100 to contribute towards her college savings.
It would seem like my daughter should have an extra $2,400 in her account because of age, right?
WRONG.
I unintentionally started using a new investing technique with my son, and it seems to be working quite well. Today I’m going to share that secret with you.
Basically, I’ve been taught three common ways to save for college or retirement:
- Lump Sum investment as early in the year as possible. For several years, this is how we saved for retirement. Since the market is usually going up, then the sooner you invest your money, the better.
- Dollar Cost Averaging. Invest the same amount of money each month. We mostly use this strategy for investing.
- Value averaging. A great way to save money for something with a relatively short term (10 years or less).
With my son, I’ve taken a type of value averaging approach that doesn’t involve any tracking and calculations.
My Step By Step Guide for Increasing Investing Rate of Return
Step #1 – Do your best to ignore the news.
Don’t spend too much time following the current market trends.
Step #2 – Wait until everyone is saying the world is going to end.
Step #3 – Wait another couple of weeks.
Step #4 – Make a lump sum investment.
Basically, what I’ve done is intentionally only purchased shares for my son when the market is low.
I don’t really know if this is a good approach to investing. But I can tell you that my son and daughter have almost the exact same amounts of money saved for college even though we started investing for her 2 years sooner.
Is it Luck?
I guess my daughter was just born at a time of market strength and my son at a time of market weakness. In the end, I don’t know if there is much to say other than that my son was luckier than my daughter.
Do you think luck is a part of investing?
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“Step #2 – Wait until everyone is saying the world is going to end.
Step #3 – Wait another couple of weeks.”
Oh my gosh! That had me rolling with laughter.
Emily Dickenson said that luck is where preparation and opportunity meet. I think you’re capitalizing on the idea.
Jessica07 recently posted..Theres No Shame in Being Skeptical
Make your own luck. Make it hard to screw up, and you cant go wrong. Most people ruin their investment returns by over-thinking, overacting, and under-investing. Slow and steady wins the race.
Pat,
The problem with investing is that it’s hard to make your own luck. Sure we can do things to minimize the gains and losses. But at the end of the day we can’t make the market got up.
Sometimes I feel like luck has a lot to do with the success for anti-success of my investments. I have two main accounts.
One, a Roth IRA, I put a lump sum into in July of 2008. Then the recession hit. It is back to even now or even a little higher. If I would have been lucky enough to wait on that lump sum for 6 months to a year I would have been way up.
Two is my 401k at work. With that one I do the dollar cost averaging every month. That account has done very well through the same period. The averaging really does work.
Billy Hart recently posted..inMessment Game – First Quarter Results 2011
Billy,
Your situation is similar to mine. The market conditions make a huge difference in your returns.
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