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Drip feed your investments, and watch them grow…

Article By Adam Hurwood | | Financial Planning
Investing in the share market can be daunting – particularly in difficult times, when share markets see-saw from one day to the next. When is the best time to invest? How much should you invest? How often? If the value of your investment plummets, should you take your money out quickly before you lose the lot or should you take advantage of the low price and buy more?

Drip feed investing (DFI) can take some of the angst out of these decisions while also ensuring that your investment continues to grow – regardless of what the share market decides to do!

What is Drip Feed Investing?

DFI is investing by instalment.

How does it work?

In very simple terms – you select an appropriate investment then drip feed that investment by investing a further, pre-budgeted amount of money into it at regular intervals. You do this no matter what – if the price of your investment goes up, if it goes down, if it remains flat for months on end. Regularly feeding your investment will make it grow!

What are the benefits?

• You are always invested – and regularly investing – so it’s great for helping you achieve long-term goals like saving a deposit for a house or funding your child’s education
• You can gradually buy into growth assets such as shares – which, in the longer term, are likely to give you a better return on investment than cash investments such as bank accounts
• You can start with small sums
• You develop a regular savings/investment habit – great to show a lender when buying a home
• You can access all or part of your funds in an emergency (try selling just the bathroom of an investment property!)
• The cost of your investment averages out over time
• The risks you take investing are smoothed out because you are investing gradually rather than with a large lump sum

What are the risks?

When you drip feed invest into growth assets, such as shares, you take on all the inherent risks attached to those assets. In the case of shares, the value of your investment will seesaw in line with the share market – but remember, your risks will be smoothed out because you are not investing all your money at once.

You might miss out on a good buying opportunity – the key word here is ‘might’. In order to make the most money from any investment, you need to invest all your money as a lump sum when the value of the investment is at its lowest point and sell when it is at its highest. Unfortunately, even professional investors find it difficult to pick those two points.

Your Altitude Financial Adviser can help you select an appropriate investment and help you with your budget so that you know how much you can afford to regularly drip feed into it.

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