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General Investing

Terminology

Dollar Cost Averaging

This is an extremely popular stock investing tactic which involves investing the same amount of money at regular time intervals. Monthly, quarterly and yearly are common time intervals used by stock investors. The main advantage of this tactic is that fewer shares are bought when stock prices are high and more shares are bought when stock prices are low.

Annualized Return

The annualized return is calculated by adding a fixed percentage to each year's cumulative total. With this method the percentage gain is the same for each year and the dollar amount increases each year. This method is also known as the Compounding rate of return.

Saving for your Investments

Tips and ideas on how to save money

An Overview of Investing - Saving for your Investments; Picture of a man saving money in a piggy bank for his future investments while using a calculator.

At first the idea of saving for your investments may seem a little odd, but the more money you can save over the years, the more money that can be allocated to your investment portfolio, thereby further increasing its value.

The additional money added to a portfolio also earns a return, giving a double bonus.

Saving Money

The average person tends to be fairly inefficient at controlling their own day to day finances. Money tends to be needlessly wasted and they are not even aware of it.

This is not their fault, it's just that they have not discovered or learnt that if they are more efficient with their finances, then their long-term investment portfolio will be given a substantial boost.

A little bit of money saved today and invested, becomes a lot of money in 20 years time.

Money saved on a regularly basis is a great way to implement dollar cost averaging, thereby providing ongoing contributions to an investment portfolio.

Saving money for your investments is surprisingly easy and it mostly comes down to simply being aware of the basic concepts. The famous investor John Templeton was a master at this in his early days of investing.

How to Save

The following list provides tips and ideas on how to help save for your investments.

Tips and ideas for saving for your investments:

  • Pay off high interest loans that are not tax deductible. Simply eliminating or at least reducing the amount of interest paid will free up cash for later on.
  • Pay off high interest loans before paying off low interest loans. It's surprising how many people will pay off the low interest loans first? Paying off the high interest loan first frees up cash that can be used to then pay off the low interest loan.
  • Pay off any personal debt before paying off any business, investment or other tax deductible debt. If you can, make the maximum repayments towards the personal debt and the minimum repayments towards the tax deductible debt.
  • Regularly place a small portion of your paycheck into a savings or cash investment account. A few dollars saved regularly adds up to lot of money over time.
  • Be cost conscious when shopping and buying items. A lot of the time the same or similar product can be purchased for less elsewhere, which is money saved.
  • Avoid impulse buying. Its amazing how many times if you do not buy something straight away, then you don't end up buying it all! Obviously you did not really need it and its money saved.
  • Take advantage of any free money that may be available, such as employee retirement plans where the employer will match the employee's contributions (up to a certain limit).

These may seem pretty obvious, but it is largely disciple and the effort an investor makes to improve their own financial efficiency.

If the investor saves a little here and there, this makes a huge difference to the investor's portfolio in the years to come.

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