Grow your investments one snowflake at a time
Posted
Mar 19 2008, 10:16 AM
by
Karen Datko
This guest post comes from Madison DuPaix at My Dollar Plan.
Once you establish an investment plan, you can contribute regularly and watch your portfolio grow. What if there were a way to give it an additional boost without much extra effort?
That's where investment snowflaking comes in. It's similar to the popular debt-snowflaking strategy, but focuses on building assets rather than eliminating debt.
How it works
Each time you receive extra money -- a sale on eBay, a bonus check, or repayment from a friend who borrowed $20 -- direct it toward your investments. These dollars do not replace your regular contributions, but are above and beyond them. Click here for a list of 20 places to find snowflakes to get you started.
Contribute immediately. Deposit the money in an investment account before it can be absorbed into your regular spending. If your investment accounts have a minimum contribution and you come across an extra dollar, set it aside and add to it until you reach the minimum. Immediately deposit the money in the investment account.
Challenge yourself to think strategically. If you bought a new appliance and "saved" $100 because it was on sale, turn that money into true savings by contributing the $100 to your investments. [readmore]
Benefits
Consistently depositing your extra money will accelerate your savings and could have a substantial effect on your portfolio. For example, finding an extra $25 per month and adding it to your investments will add almost $200,000 to your portfolio after 50 years at an 8% return.
The sooner you save, the more benefit you will receive from compounding. If you currently wait until the end of the year to fund an IRA or other investment vehicle, start sending in your snowflakes throughout the year. You'll also find yourself closer to the maximum by the end of the year.
Any amount that you can't contribute you can immediately invest for next year once the calendar page turns.
Investment snowflaking in action
I kept track of our investment snowflakes last month. I was able to add an extra $215 to our investments. Because this money wasn't part of our original investment plan, it puts us further ahead of our goals.
Lisa at Greener Pastures: Personal Finance has another investment-snowflaking success story. She snowflaked $200 in January to invest. In addition, "VH" at Funny about Money was able to snowflake $103 in January. By the way, Pinyo at Moolanomy included snowflaking as the seventh factor in building alternative income streams.
The snow may be melting, but it's a great time to start your investment snowflaking. I'm committed to growing our portfolio through snowflakes large and small. In addition to the financial benefit, it's also a fun strategy.
Other articles of interest at My Dollar Plan:
"Reverse strategy: Decreasing contribution percent"
"My asset allocation: Total market approach"
"Roth 401(k): What is it?"
