Quora Answer: With a Long-Term Horizon, is It Smart to Invest Regularly in Index Funds While Awaiting Opportunities?

The following is my answer to a Quora question: “As a young worker with long term horizon, is it a smart strategy to invest regularly in index funds, all the while putting aside savings for any opportunities that may arises?”

It is a wise move.  Since you have an extended investment horizon, you can play the buy and hold strategy.  Investing a fixed amount regularly gives you dollar cost averaging.  And index funds have some liquidity in and off themselves.  The consideration is in the type of funds, and diversification you are looking for.  This takes research, and experience.  It is important to have discipline and not be taken in by trends and market sentiment.  Instead, make sure you know the underlying value of counters that interest you.  This affords you an opportunity in bargain hunting, and avoiding overpriced counters.

Some points to consider include keeping it simple.  You should stay away from derivatives, as a general rule, until you have the experience to understand how they respond to the market, and the finances to take a hit.  Diversify across industries and regions.  This helps you mitigate bear markets, since a fall in one area of the market does not devalue your entire portfolio.  Watch out for political and currency risks.  This means you should make an effort to keep abreast of current affairs and political developments.  Finally, when you have funds to spare, diversify away from only investing in index funds to other types of financial instruments.