What to do with spare change? Small amounts of money have a way of just dribbling away.

What to do with spare change? Small amounts of money have a way of just dribbling away.

At some point you wonder, “Whatever happened to....??????

That’s why some use a Change Jar or even a piggy bank to accumulate spare change or small cash flows so later you can do something meaningful.

Combine that with the Power of Compound Interest and Dollar-Cost-Averaging and you can transform seemingly small money inflows a into a long-term Powerful Financial Accumulation Tool. Consider...

The lady started small, investing $20,000 in a long-term-growth oriented global equity fund in 1993. For a few years she sent in small deposits, eventually adding $16,105 over a period of 5 years. Her total investment in the fund was $36,105. She stopped contributing but left the fund alone, never cashing in even a share. Recently her “leave it along to grow fund” was worth $284,225.

We often have said, when it comes to investing in the stock market, time is more important than timing! Investor’s psyches are buffeted every day in the 24/7 news cycle. Chicken Little gets more attention than Good News Charlie. Someone always is hawking a book, newsletter, seminar series, or a money management program entitled Little Known Investment Secrets of the Rich and Powerful, or some such. “A crash is coming, but if you buy my book (newsletter) entitled The Investment Stairway to Heaven, you will be saved! Hallelujah!”

Consider what has roiled global markets since our investor made her initial purchase: Asian financial crisis, 1997; Russian financial crisis, 1998; dot-com stock market bubble implosion, 2000; 9/11 attacks, 2001; global credit and mortgage crisis, 2007-2008; Dubai debt crisis, 2009; European sovereign debt crisis and “flash crash,” 2010; European sovereign debt crisis (Spain and Italy), 2011...and so it goes. Now, one day it is Greece, another day China. There always is something to convince those without a long-term plan that “now is not the time to invest.” Markets have their ups and downs. When it comes to gurus, even a broken clock is right twice a day!

If our investor made one mistake, it was failure to continue contributing money after five years. A fundamental axiom in successful long-term investing is dollar-cost-averaging. That is why 401(K) plans work if participants invest in a portfolio heavily weighted in equities with weekly or bi-weekly contributions. During periodic market dips the level cash contributions buy more cheap shares when the market is down, and less expensive shares when market valuations are high.

With this process of disciplined investing, eventually the average cost per share becomes smaller and smaller since you buy more cheap shares and less expensive shares. Here’s a simple example from Investopedia: You purchase $100 worth of XYZ each month for three months. In January, XYZ is worth $33, so you buy three shares. In February, XYZ is worth $25, so you buy four additional shares. Finally, in March, XYZ is worth $20, so you buy five shares. In total, you purchased 12 shares for an average price of approximately $25 each.

XYZ then recovers to $33 per share, where it was 3 months ago, for basically a zero gain over that period. Your average cost of the 12 shares was $25 per share. If you sold your 12 shares at $33, your proceeds would be $396 on a $300 investment. In a long-term disciplined accumulation strategy, volatility is your friend!

If you have money coming in from alternative investments and you don’t need it now, set up a growth-oriented investment account equivalent to a change jar, and let values accumulate and grow. It is important to note that you cannot project past results into the future. Equity investments have risk and are not guaranteed; they can and do lose money; future results will vary.

But we do know that patterned and disciplined investing works, dollar-cost-averaging works, and time is more important than timing!

Lewis Walker is President of Walker Capital Management, LLC. Certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with Walker Capital Management, LLC. lewisw@theinvestmentcoach.com