Core Investment Concepts

Understanding these fundamental concepts is the foundation of successful investing.

Dollar Cost Averaging (DCA)

Invest a fixed amount at regular intervals, regardless of price

How It Works

Instead of timing the market, you invest consistently over time. When prices are high, you buy fewer shares. When prices are low, you buy more shares. This naturally averages your cost.

Example: $500/month into S&P 500

January (S&P at $450) 1.11 shares
February (S&P at $420) 1.19 shares (more!)
March (S&P at $480) 1.04 shares

Average cost: $448/share

Why DCA Works

  • Removes emotion - No need to guess the "perfect" time to buy
  • Reduces risk - Spreads purchases across market conditions
  • Builds discipline - Automatic, consistent investing habit
  • Works with any budget - Start with whatever you can afford

Compound Interest

The "eighth wonder of the world" - Einstein

What Is Compounding?

When your investment earns returns, those returns are reinvested and also earn returns. Your money grows exponentially, not linearly.

$10,000 invested at 10% annual return:

Year 1 $11,000
Year 5 $16,105
Year 10 $25,937
Year 20 $67,275
Year 30 $174,494

Rule of 72

A quick way to estimate how long it takes your money to double: divide 72 by your annual return rate.

At 6% return 72 / 6 = 12 years
At 8% return 72 / 8 = 9 years
At 10% return 72 / 10 = 7.2 years
At 12% return 72 / 12 = 6 years

Key insight: Time is your biggest advantage. Starting early matters more than timing the market.

Time Value of Money

A dollar today is worth more than a dollar tomorrow

The Core Principle

Money available now can be invested to grow over time. Waiting means missing out on potential returns - this is called "opportunity cost."

Two investors, same amount - different timing:

Alice: Starts at age 25

Invests $500/mo for 10 years, then stops

Total invested: $60,000

At 65: ~$1,000,000

Bob: Starts at age 35

Invests $500/mo for 30 years

Total invested: $180,000

At 65: ~$900,000

What This Means For You

  • Start now - Even small amounts matter when you have time
  • Stay invested - Withdrawing resets your compounding clock
  • Reinvest dividends - Let your returns compound automatically
  • Avoid fees - High fees erode your long-term returns

The takeaway: Alice invested 3x less money but ended up with more wealth because she started 10 years earlier.

Ready to Learn More?

Now that you understand the basics, explore investment strategies or compare benchmarks.

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