As an investor, it is important to continuously add more capital to your investment portfolio over time. This allows you to take advantage of compounding returns and enhances your long-term wealth creation. There are several effective ways to keep adding on to your investments, which we will explore here with a focus on the key words “add on investing”.
Dollar cost averaging helps make regular additions
A simple and disciplined way to keep adding to investments is through dollar cost averaging. This involves investing a fixed dollar amount on a regular schedule, such as $500 per month. As the market fluctuates up and down, you will buy more units when prices are lower and fewer units when prices are higher. Over time, this helps lower your average cost per unit.
Reinvest dividends and distributions for compounding
Many investments like stocks and mutual funds pay out dividends and capital gains distributions. You can opt to automatically reinvest these payouts to purchase more shares or units of the investment. This allows your holdings to grow through the power of compounding without having to actively add more funds.
Add when rebalancing your asset allocation
As you rebalance your portfolio to maintain target asset allocations, you end up selling assets that have increased in value and buying more of those that have declined. This necessitates adding more cash to underweighted assets, allowing you to add on to investments.
Use windfalls wisely to boost investments
When you receive occasional windfalls like bonuses, tax refunds or inheritance, deploying some of that into your investment portfolio lets you make lump sum additions. Even small windfalls invested consistently over decades can grow to sizable corpus.
Increase monthly savings when cash flows allow
As your income and cash flows grow over time, endeavor to save and invest higher amounts. This allows your investments to scale at a faster rate. Even marginally increasing monthly investments helps achieve this goal.
Adding on to investments through various strategies allows investors to benefit from rupee cost averaging, compounding and windfalls. This leads to a virtuous cycle of accumulating higher corpus over long-term.