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Wealth Accumulation- Nickels, Dimes, Cents or Dollars

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photo by bhollar at http://www.flickr.com/photos/bhollar/3176412833/The first rule of investment is that you must be saving money. So if I spend more than I earn, there is no savings. The key to saving is to pay You first.

How? You take out a part of your salary monthly and put it to another bank account or investment tool.

A rough gauge is to save at least 3 months of expenses first into your savings bank account. Once you have that, invest an amount at least equal to around 10% of your salary.

So if my salary is say $2000 a month with monthly expenses of $1500, I will want to have $1500x 3 months = $4500 in my bank account. After I have that amount, I will invest the $500 I have left over each month.

The $500 is 25% of my salary, but the rough guide is to have at least 10% of your salary saved. For rainy days such as this economic recession.

What will I do with the $500 each month? If you are like me, with no time to monitor the markets and don't have the professional qualifications like CFA, CFP etc etc, the best tool is to invest in index funds.

Index fund track the stock market indices, meaning it buys the company stocks that make up the index so it will move relatively in sync with it. This means you save on costs, as there is minimal stock churning.

Unlike mutual funds/unit trust where the managers may sell and buy stocks constantly and make your money work less hard for your. Read what critics of index funds harp about and the defence of index funds here.

I am buying $200 worth of index funds (S&P 500) each month, $100 worth of unit trust (Aberdeen Asia fund) each month and buying stocks/EFTs in Singapore when I can. I am about to finish reading "A Random Walk Down Wall Street" and it is making me think whether I should get more of index funds using dollar cost averaging. What would you do?

In this time of depressed markets, it takes a brave or foolhardy person to continue to invest. I believe the dollar cost averaging method takes the emotion of fear /greed out of investment and makes it disciplined and methodological.

Wealth accumulation should be boring, lengthy, disciplined and accompanied by accumulation of investment knowledge through reading the masters and academics of investment.

Wishing you a fruitful investment journey. If you haven't started, what are you waiting for?

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