Well, it sure has been a rocky, crazy time these last few weeks. Heck, this entire year!
Of course, there has and will continue to be much speculation as to when is the right time to move money back into equities. If you have a long time horizon for your investment dollars (10 year or more) you have hopefully not changed your position too drastically. If you have a shorter time until your are going to need to start withdrawing money from your investment dollars, hopefully you already had your money positioned for stability and income production.
Despite the ups and downs of the market and the uncertainty of what the future holds, certain standard fundamentals of investing still hold true. One of these fundamentals is called dollar cost averaging, or DCA. DCA allows an investor to beneficially participate in any market condition. As we can see from the included illustration, in all market conditions–up, down, and flat–the investor’s average cost per share is less than the average market price per share.
The most powerful aspect of this strategy really comes through in the long-term, however. Even though we are in tough times in the markets, those markets still go up–over that long time horizon. Just look at any given 15-20 year period: markets go up and the long-term investor makes big money by implementing sound strategies and sticking to them. Dollar cost averaging is just one of these fundamentals. Proper diversification, or asset allocation, and at least annual rebalancing of a portfolio are the two other strategies that reap huge long-term benefits.
Please take a look at this illustration. Feel free to contact me with any questions or if you would like more information about any other financial planning, investing, or insurance questions. Cheers!
