Cumulative effect in investments
Work, save, invest. And at one fine moment you suddenly realize that you have become a rich man. There was a lot of money. This is inevitably due to the cumulative effect in investment.
What is a cumulative effect
The child is learning to walk. He releases his mother’s hand. For a second, he balances fearfully and falls. After many falls, he already knows how to stand firmly. Moreover, he even learned to climb on his own. Takes the first step. Fall again. In the future, he stumbles on every bump. Roars, stuffs bumps, but continues to try. And then one day a miracle happens. Not just walking, running. From now on, he is a confident walker.
From the point of view of physiology, every unsuccessful attempt, every bruise, every second of precarious balance is deposited in muscle memory, in the cerebral cortex. Experience is gradually accumulating. And when some critical mass accumulates, the training is over. The necessary muscle fibers grew, all the neurons hooked on to each other. Explosive progress is taking place. It seems that he just couldn’t take two steps. And then suddenly he ran.
Each attempt to achieve the goal – successful or not – contributes to the overall treasury of the result. The contribution is not always large, not always noticeable. Even if it doesn’t seem to exist. But he is. A million falls and the child ran.
This is the cumulative effect.
How to achieve a cumulative effect in investments
Investments also have a cumulative effect. To get it, it is enough to conduct prudent financial behavior and avoid stupid actions.
It is necessary to systematically receive a salary, save a little, invest savings and receive income on investments. Something will happen to your money. Outwardly imperceptible. You may not even be particularly interested in what is happening. But one day it suddenly turns out that you already have enough money. Where did they come from? Who knows…
The same cumulative effect worked.
Note. You don’t need to earn a lot, you don’t need to save heavily, you don’t need to invest a lot, you don’t need ultra -high returns on investments. These obvious signs of financial well-being are not needed. If all this is there, then good. And no – no problem.
What does the cumulative effect in investments look like not in theory, but in practice? I’m telling from my experience. I am not a role model. Perhaps your cumulative effect will manifest itself differently. But he will. Exactly.
save at home
I don’t keep my family on a starvation diet, or in a "black body". We buy only necessary things and necessary products. We have everything we need. And, good quality. You have to pay more for quality. But I’m not going to pay for the brand, for the status and for other rubbish. I save on this. As for quality, no.
Every small thing like toilet paper I buy in huge packages at wholesale prices. In "Magnet" I do not hesitate to buy in bulk at yellow promotional price tags. Sunflower oil, tea, or coffee, you can buy a lot at once. It will not disappear in the pantry, over time we will eat and drink everything.
I even buy lavrushka with a broom. Such bunches of bay tree branches with leaves. It is inexpensive. He brought it home – he tore off the leaves. Reserve for a year.
All the pennies saved in this way end up in my wallet. I do not know how much, but I know that they settle. And at the end of the month, I always have some money left over. They immediately go to the exchange, where I invest them. In exchange, a new salary arrives on the card, which I also spend economically.
Invest the money I save
I have been systematically investing for many years. I don’t speculate, I don’t rush between different stocks. And year after year I buy the same shares. I don’t even remember at what price I bought it. I am not interested in the dynamics of quotes. It is enough for me to know that, in general, my stock prices are on an upward trend. How much they have grown is not important, the main thing is that they have grown. Well, they still pay dividends.
I hold investment positions for a long time
Sometimes there are stock market crashes, but then recovery growth follows and growth is even higher. The result is an increase. Let a small, but systematic increase. If you hold good stocks for a long time, then despite the frightening fluctuations in quotes, they will still show growth. Rarely, when the growth is tens of percent per month. Shares will quietly climb up. Typically, the increase is a fraction of a percent per month. And I don’t need to go fast. It is necessary for me that the movement "in plus" does not stop.
I receive dividends and reinvest them
I regularly receive dividends on my shares. I have no idea how much I get. What matters is what I get. It happens that for some year the dividends are low. But then it will be higher, then generally record-breaking, and again they will pay modestly. On average, a normal dividend yield is obtained. I reinvest dividends all the time. I do not spend money, but they join the main capital. Increasing it imperceptibly.
Save on transaction costs
Once upon a time, my greedy broker charged me a monthly deposit fee in addition to the exchange commission simply for the fact that I was his client. Approximately 400 conditional units per month. And this is 4800 per year. Changed broker. The new broker took a depositary fee from each transaction from each transaction separately. Somewhere around 200-300 conventional units. These are additional costs for each transaction. I make about 20-30 trades a year. So I saved almost nothing. Let’s say you can buy shares less often. Save money all year and buy large packages at once, then there will be savings. But I changed the broker again.
Now I have a modest broker, he takes a deposit fee of 200 conditional units per month, provided that I made at least one transaction this month. If there are a lot of transactions, then all the same, I pay 200 conditional units and that’s it. Unlimited. I try to buy 4 times a year.
There are rumors that even this collection will be canceled soon.
Pay attention once paid 4800 a year, now 800, or even less. Savings are evident. Moreover, all the money saved remains on the brokerage account. And on them I buy additional shares. I don’t know how much I saved in total. But the main thing is that the money remained with me.
What is the cumulative effect
Let me summarize a little. There are many streams of money flowing into my pocket. Some of them are quite modest – penny. For example, the same savings on wholesale purchases of toilet paper. But all free money ends up in the stock market sooner or later. I buy shares in them. Stocks pay dividends and this also increases the size of my capital. I also save on transaction costs and this also increases my account.
However, I don’t know any of the numbers. I don’t know how much I earned, I don’t know how much I saved, I don’t know how stock prices rose or fell.
But at the same time, I definitely see how every year my capital becomes more and more. All these small sums are invested, reinvested. Spinning – spinning. And in the end, a big ball of money rolls up.
This is how the cumulative effect in investments manifested itself. I had to wait a long time for him. For years. Decades. But if I continue my financial strategy, then the capital will continue to increase. Only faster. And I will enter retirement age as a wealthy person.
Negative cumulative effect
Bad financial behavior also has a cumulative effect.
Extravagance, credit dependence, unsystematic spending, lack of investment. Each of these factors individually undermines your financial well-being. Not catastrophic, but harmful. And if they act simultaneously all together, or in turn, then in total they will destroy your financial well-being, no matter how much money you earn.