If you already own units in a mutual fund, there are three ways to buy more:
1. Lump-sum purchases: You can buy fund units whenever you have extra money. This could come from a bonus at work, or from a tax refund, for example.
Make sure you do it: The trouble with lump-sum deposits is that it?s easy to forget to do it. You have to find a way to make these contributions a habit. For instance, if you always get a yearly bonus at work or a tax refund, save and invest these lump sums.
Set yearly goals and stick to them: If you leave money too long in your bank account, you may spend it on other things. Make sure that you have a plan, or you won't reach your investment goals.
2. PAD (Pre-Authorized Debit): If you want to keep buying more units, you can set up a PAD with your bank. Your bank will take a certain amount of money out of your bank account and transfer it to your mutual fund dealer to buy more units. You set the schedule up in advance.
3. Reinvest some of the money you make investing: The underlying investments you own in your mutual funds will earn money such as interest and dividends. The mutual fund distributes these earnings to you from time to time. Most of the time, these distributions go to buy more units of the fund for you. If you would rather get these earnings in cash, talk to your adviser.
When you reinvest, you:
- Spread your risk out over time. Investments go up and down. By making regular investments, you spread out your buying. This approach is called dollar-cost averaging. It takes away the worry of trying to pick the right time to buy.
- Put your money to work sooner than if you wait to save up a lump sum.
- Make it easier to save. It's automatic.
Tip: Stay involved in your investments! If the money is going into your mutual funds automatically, you may not give your investments the regular attention they need. Set times to review your investments during the year.
Remember: Before you buy more units of a mutual fund, check its performance
Sometimes it may be better to branch out into different funds or different investments. If you do reinvest, check from time to time that this is the best choice for your money.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.