How to invest safer (Part 2)

Someone asked me, how to invest safely into the stock market?

I find that easiest (and probably the safest) way of investing into stock market is by keeping it really simple, so:

  1. broad-based index funds
  2. dollar-cost-average over time
  3. time in the market

Broad-based index funds

These type of index funds are good because they tend to have very little asset management fees (1); and over time, market grows as a whole (2). So by investing into the entire market keeps you well diversified and little management fees doesnt erode the returns you get.

One thing you’d see in most AUM (assets under management) investment companies are that they take / skim off 1-2%+ of all returns, be it good or bad market. So in a good market, if you get an 8% return, they’re taking up to 25% on your returns. In a bad market, if you already lose 13%, they’re gonna take an additional 2% from your portfolio.

Broad-based index funds takes away these expenses and keep you invested into the market as a whole.

Dollar-cost-average over time

Also known as “DCA”, this is one of the best ways to invest:

carve a % budget of your income that goes directly into investment(s) of your choice on a monthly basis

Doesn’t matter if it’s higher price or lower price, by doing this over a period of time, you’d get an average aggregate price which will likely be much better than trying to get a lump sum and entering the market.

Time in the market

This is a continuation of dollar-cost-averaging, and time in the market (invested) is always more powerful than trying to time the market (be it investing or cashing out), because it removes the overthinking and other investor psychology that can mess around with your investing approach.