Why I Would Prefer That You Invest $500 Rather than $5,000

Many people think successful investing means hitting “home runs” — finding the next hot stock or timing the market perfectly. We’ve all seen headlines like “These stocks will 3X in five years” or heard a friend brag about putting $25,000 into “the next big thing.”

While these stories can be exciting, they promote a flawed view of what really drives long-term investment success. The truth? Consistency often beats flash. Yet the “big win” mindset remains popular for a few key reasons:

Reason #1 - Quick wins are more appealing

Our brains are wired to prefer instant gratification, and advertisers know it. If you feel behind on savings or fear “missing your chance,” it’s tempting to throw a big lump sum into a single opportunity. But do you have the capacity to endure losses? And if that first experience is negative, will you keep investing at all?

Reason #2 - Poor financial education at most levels

Financial literacy is grossly under-taught in our educational system at almost every level. Most of the education that children or youth will receive is likely to come in the form of advertisements trying to sell them something. One of the most popular being "Buy now, pay later" which harnesses the power of compounding against individuals, rather than for them. There is very little effort to coach young people about the importance of having a disciplined approach to finances and investing.

Reason #3 - Long-term planning is hard

Choosing the path of least effort is built into our DNA. In some cases, it's a survival instinct, but in others, it's simply laziness. Investing with consistency for the long-term requires the individual to make sacrifices in the now for a better outcome in the future that can't be easily measured or compared.

Just like personal fitness, you need to have a plan that you can stick to over the long term. A week of daily 6-hour workouts is more likely to hurt you than help you when you're just getting started.

What's the alternative?

Understanding these tendencies is important, because they explain why I often recommend starting with $500 a month rather than a $5,000 lump sum. It’s not about the absolute amount — it’s about building a repeatable habit that keeps you in the market and reduces emotional decision-making. Here’s why smaller, consistent contributions work better for most people:

Benefit #1 - It's psychologically easier

Retailers are using micro-transactions to make everyday products seem easier to purchase. If you can't afford to buy that car, watch or jacket right now, just pay for it over 12 months. I'm not saying that this type of marketing is actually benefiting consumers, in reality, the opposite is likely true.

However, the psychology behind it is a powerful force. Why not use the same tactic when it comes to saving for the future? Except that with investing, the law of compounding works in the investor's favor rather than against them. Rather than saying that you need to have $1M saved in your RRSP & TFSA to retire, emphasize the small incremental steps that you can take today and work towards that goal.

Benefit #2 - You can grow into investing

No matter what anyone tells you, there are no risk-free investments out there. Even the best options that I would personally recommend to my own children have their own set of inherent risks. One of the biggest risks that every investor cannot avoid is the unpredictability of their day-to-day life. Draining your emergency fund to chase an investment opportunity is gambling, not investing.

Regular incremental investing allows you to take a position in the market with intentionality and purpose. So that when the markets go down or life throws a curveball, you're in a better position to withstand it.

Benefit #3 - Automate your habits

James Clear’s Atomic Habits highlights the power of making good habits easy to do. Automating a monthly investment is exactly that — something that builds wealth with little effort. . Doing something great with little to no effort? Sign me up.

Workplace pension plans are an excellent example of this benefit at work. Pension contributions are invested automatically for the benefit of the employee and often grow to be one of the largest retirement assets for Canadians. But if you're self-employed or employer doesn't offer a benefits package, why not just create your own automated saving habit?

The Bottom Line

Don't discount the power of smaller but consistent investment contributions. Lump-sum investing has its place, but especially for new investors — or anyone restarting after a bad experience — smaller, steady contributions are often the best first step.

The right amount and frequency for you should always be based on your complete financial picture and the goals you are looking to accomplish. Working with a financial planner or advisor that you trust can help to navigate what an automated investment plan looks like for you.

If you're looking for an independent fee-only financial planner, Book an Intro Call today!