Whether you did it yourself, consulted an advisor, or used your company’s 401(k) online planning tool, you had to answer some basic questions, including: what’s your risk tolerance?
Most of us invest for the long-term. We save to prepare for life’s big-ticket items, such as buying a home, starting a family, paying for college, and securing our retirement. While those priorities aren’t likely to change, our tolerance for risk probably will.
So, whether you remember your answer or not, it makes sense for you to revisit your risk tolerance and adjust your investments accordingly. But how often should you do that?
As with most financial questions, there’s no clear-cut answer. However, there are some guidelines to help you make the best choices for your situation.
Have you ever stared at your bank account wondering if now’s the right time to jump into the stock market? Or maybe you’ve already started investing but aren’t sure if your schedule makes sense. I totally get it – figuring out the right investing frequency is one of those things that can drive you nuts when you’re trying to build wealth.
After years of helping folks navigate their investment journeys, I’ve learned that there’s no one-size-fits-all answer to “how often should I invest in stocks?” But don’t worry, I’m gonna break down everything you need to know to find your perfect investing rhythm.
Monthly Investing: The Sweet Spot for Most People
Let me cut to the chase – investing regularly each and every month is often the ideal approach for most people Here’s why monthly investing works so well
It’s Manageable for Your Budget
Most of us get paid monthly or bi-weekly, making it easy to set aside a portion for investments right when the money hits your account. This aligns perfectly with your cash flow and helps prevent the “where did all my money go?” syndrome at the end of the month
It Harnesses the Power of Dollar-Cost Averaging
This is where things get interesting. When you invest the same amount monthly you’re using a strategy called “pound-cost averaging” (or dollar-cost averaging). Let me show you how it works with a simple example
Let’s say I invest $100 monthly in “Amazing Corp” shares:
- January: Shares cost $10 each → I get 10 shares
- February: Shares drop to $5 each → I get 20 shares
- March: Shares rise to $20 each → I get 5 shares
After three months, I’ve spent $300 and own 35 shares, making my average cost per share about $8.57. If I had invested all $300 at once in January, I’d only have 30 shares at $10 each. See how this smooths out the market’s ups and downs?
It Creates a Hands-Off Investing Habit
I love monthly investing because it’s basically “set it and forget it” investing. Most investment platforms let you set up automatic transfers and purchases. You just pick the amount, choose your investments, and let technology do the rest. No need to stress about timing the market or remembering to make your investments.
Other Investment Frequencies to Consider
While monthly investing works great for most folks, it’s not the only option. Let’s look at some alternatives:
Weekly Investing
Pros:
- Even more dollar-cost averaging benefits
- Smaller amounts might feel less painful to your budget
- Can help if you’re paid weekly
Cons:
- More transactions to keep track of
- Might incur more fees depending on your broker
- Can lead to overthinking your investments
Quarterly Investing
Pros:
- Less admin work than monthly investing
- Works well for people who receive quarterly bonuses
- Gives you time to research investments more thoroughly
Cons:
- Fewer dollar-cost averaging benefits
- Larger lump sums might be harder to budget for
- Three months is plenty of time to procrastinate or forget
Annual Lump Sum Investing
Pros:
- Super simple – just one transaction per year
- Works well with annual bonuses or tax refunds
- Research shows lump-sum investing can outperform DCA in rising markets
Cons:
- All your eggs in one basket timing-wise
- Psychologically harder to commit large amounts
- Miss out on dollar-cost averaging benefits
How to Choose Your Investing Frequency
To figure out what’s best for YOU, consider these factors:
1. Your Income Pattern
How often do you get paid? Your investing frequency should align with your cash flow. If you’re paid bi-weekly, you might find bi-weekly or monthly investing most natural. Freelancers with irregular income might prefer investing a percentage whenever they get paid.
2. Your Investment Amount
There’s a myth that you need tons of money to start investing. Not true! You can get started with as little as $25 a month. However, if your broker charges fees per transaction, less frequent but larger investments might make more sense.
3. Your Psychological Comfort
This is HUGE and often overlooked. Some people get anxious checking their investments too often, while others feel more in control with frequent monitoring. Be honest with yourself – what schedule will help you sleep at night while still making progress?
4. Your Life Stage
Younger investors can usually afford to take more risk and might benefit from more frequent investing to build the habit. As you near retirement, you might shift to less frequent rebalancing of a more conservative portfolio.
Setting Up Your Investment Plan
Once you’ve decided how often to invest, here’s how to put your plan into action:
- Choose your investment platform – Look for one with low fees and automatic investing options
- Set up automatic transfers – Link your bank account and schedule regular deposits
- Select your investments – Index funds or ETFs make great core holdings for most investors
- Set a review schedule – Plan to review your investment choices once or twice a year
When to Adjust Your Investment Portfolio
While we’re focusing on how often to add money to your investments, it’s also important to know when to adjust your existing holdings. Most experts recommend reviewing your portfolio annually or when major life events occur, such as:
- Getting married or divorced
- Having children
- Buying a home
- Changing jobs
- Approaching retirement
- Receiving an inheritance or windfall
Remember, adjusting your portfolio is different from adding new money. It’s about making sure your investment mix (stocks vs. bonds, different sectors, etc.) still matches your goals and risk tolerance.
Common Questions About Investment Frequency
“Should I wait for market dips before investing?”
Trying to time the market is incredibly difficult, even for professionals. The data consistently shows that regular, disciplined investing outperforms attempts to time the market for most people.
“What if I have a lump sum to invest right now?”
Research from Vanguard suggests that investing a lump sum all at once historically outperforms dollar-cost averaging about 2/3 of the time. However, if investing it all at once would keep you up at night worrying, there’s nothing wrong with spreading it out over 3-6 months.
“Should I invest more frequently during market volatility?”
If you can afford to without disrupting your financial stability, increasing your investing frequency during market downturns can be advantageous. Just don’t go overboard – stick to your overall financial plan.
The Bottom Line: Consistency Beats Perfect Timing
The most important thing isn’t whether you invest weekly, monthly, or quarterly – it’s THAT you invest consistently over the long term. The magic of investing comes from:
- Time in the market – The longer your money is invested, the more compound growth can work its magic
- Consistency – Regular contributions build wealth more effectively than occasional large ones
- Discipline – Sticking to your plan regardless of market conditions
I’ve seen people obsess over finding the “perfect” investment schedule when they should be focusing on just getting started. Remember, the best investment schedule is the one you’ll actually follow through with.
For most people, monthly investing hits the sweet spot – it’s frequent enough to capture dollar-cost averaging benefits while being easy to automate and align with your paycheck.
What’s your investing frequency? Have you found a rhythm that works for you? Whatever you choose, just make sure it’s sustainable and aligned with your financial goals!
Final Thoughts
Investing doesn’t have to be complicated. By setting up a regular investment schedule that works for your life and budget, you’re setting yourself up for long-term financial success. The key is to start now, be consistent, and let time work its magic on your investments.
So don’t get too caught up in finding the “perfect” schedule – just pick a frequency, set it up, and let your money start working for you. Your future self will thank you!
Sell high and buy low or play the hot hand?
Suppose you have a portfolio with 80% stocks and 20% bonds. And let’s say that one of your stocks is doing so well that your ratio is now 85% stocks and 15% bonds. Should you reassess your position?
If you want to maintain your original ratio — and don’t forget, those aren’t just numbers, they reflect your risk tolerance — the answer is yes. The conventional wisdom on how you do that may surprise you: sell your high performing stock and put that money into bonds to get back to your 80/20 balance. Yes, you read correctly: sell what’s making you money and buy more of what isn’t.
Theres a solid rationale behind this strategy. If that one stock represents too much of your portfolio, you’re putting yourself at risk if the price plummets — the “too-many-eggs-in-one-basket” problem. This tactic also forces you to practice the “sell high, buy low” philosophy that many of us agree with but few of us follow. That high-performing stock is going to peak at some point, it’s just a matter of when.
This is a different way to think about risk and reward. What would make you feel worse: selling a stock that continues to perform well, or holding onto a stock that starts to drop?
The gains you make with your investments are literally money in the bank. Focus on that and not on what could have been.
What does it mean to balance your portfolio?
A portfolio’s ratio of stocks to bonds is directly related to risk and reward: the higher the percentage of stocks you hold, the more risk you take on in order to increase your chances for higher returns. Over time, the stock market will probably outperform the yield on bonds, but not without some fluctuations along the way.
Generally speaking, younger investors are willing to take on more risk. While there’s no standard rule of thumb, a mix of 80% stocks and 20% bonds is aggressive, but not overly so. With time on their side, a younger investor can feel confident that the rewards of stocks outweigh their risks.
But for someone close to retirement, that same 80/20 mix may be too risky. If there’s a downturn in the market, there may not be time to rebound, especially as the investor will be drawing down that portfolio when they retire. In that case, a ratio closer to 60/40 would more closely align with the investor’s risk tolerance.
It’s logical to assume less risk as you get older.
But the question remains, how — and when — should you adjust your portfolio?