For investors to avoid falling into the trap of making emotional investing decisions it’s best to have a more disciplined system where you invest regularly.
When investments happen in regular increments, the investor captures prices at all levels, from high to low. These periodic investments effectively lower the average cost per share. This is what we call EGP-Cost Averaging – ECA.
Starting early will generally yield better results, but the final outcome will depend on how much you save, how much you earn, and how fast you reinvest.
Now, if you want to make your money work for you—you can start reinvesting your gains. This way this surplus money re-invested will even further increase your earnings. This is what we call Compounding.
The traditional example of this is holding the stock exchange index over a lengthy period of time. The constant reinvestment of the gains produces a compounding effect so you earn gains on your gains.
Suppose you can save EGP 1,000 every month (that’s not too hard, right?). Now let’s look at your options
- You just save the EGP 1,000 every month and keep them under your rug.
- You buy gold every month using this EGP 1,000 you saved.
- You deposit the EGP 1,000 you saved in a bank account every month and you keep the interest earned (so you don’t withdraw any funds from this account).
- You invest the EGP 1,000 you saved in the EGX30 each month and you keep reinvesting all the dividends that you receive. We’ll say you kept doing this from 1998 up until 2018—that’s 20 years.
Your total amount saved over these 20 years would be EGP 240,000 (EGP 1,000 a month X 12 month X 20 years). That’s not a bad amount to keep a hold of.
Now let’s look at what your return would look like in each of our above scenarios
(Disclaimer: This is not a solicitation for investment and that the study was conducted for educational purposes only)
If you begin investing in the EGX30 at age 21, you only need to dedicate EGP 3,600 annually to hit the EGP 1mn mark by the time you are 41.
If becoming a millionaire is your goal, then it’s time to get started. Just remember, investing is a long term process, during individual years returns vary and may sometimes even be negative, but patience, discipline and continuity will reward you.
Every day you wait to invest, you are losing out on opportunity. Your money won’t grow unless you invest it. It just requires discipline and patience. The sooner you start, the earlier you’ll cash out. The longer the period of time you invest the less you will worry about what happens in a single day of trading.