October Was a Good Lesson for Jittery Investors | Dollar-Cost-Averaging
Ann Blakey, CFP® at Washington Wealth Advisors
October is usually one of the worst months for stocks, but October 2022 shaped up to be the best month on record since 1976.
- Did you sell your equity positions at the end of September because you could no longer stomach this year’s market volatility and declines?
- Are you worried that maybe you should not invest now because of October’s gains?
- Are you still hoping to time the ups and downs of the stock and/or bond markets?
If you answered yes to any of those questions, maybe it’s time for you to consider some dollar-cost-averaging.
Dollar-cost-averaging (DCA for short) isn’t new, and it isn’t exciting, but the strategy has clearly proven its success. The principal behind it is this: You invest the same amount of money on the same day each month. That’s it.
Three Reasons Why Dollar-Cost-Averaging Makes Sense
1. DCA takes the guesswork out of trying to predict what the markets are going to do.
It’s easy to lose money seeking to time the markets. Even professional investors can be pretty bad at it. As long as you feel good about the investments you (and your advisor) are buying, and you know that the fundamentals are right, you shouldn’t care what the stock and bond markets are doing day-to-day.
You won’t reflexively worry when the market is down, because you get to buy more shares of a company or mutual fund that you think has great long-term prospects.
And you can celebrate when the market rallies because all of your shares are more highly valued. You win either way – and you can focus on your career and family rather than obsess over your portfolio.
2. DCA creates a disciplined approach to building wealth.
You are now on a path to save and invest regularly, building wealth one month at a time. Yes, we have all read about those hot stocks that made someone rich overnight. But for most of us, it’s going to take a working lifetime to accumulate our wealth.
3. DCA can be done with minimal investment.
You can do dollar-cost-averaging for as little as $100 per month. You don’t need thousands of dollars to get started or to continue your dollar cost averaging plan. So, no excuses.
A Few DCA To-Dos
- Start with a monthly amount that won’t break your bank. This is money you won’t miss on a monthly basis. Your advisor can help you determine the amount to start with and help you adjust (up or down) if your circumstances change.
- Make sure your investments align with your time horizon for needing the funds. Your advisor can help you with this crucial matching strategy, resulting in an asset allocation that fits your unique goals.
- Commit to a DCA program of at least 12 months. It takes time to build wealth and see the results of your efforts.
A Few DCA Don’ts
- Don’t wait for the markets to go up or down to get started. The key is consistency.
- Don’t vary the amount based on how much is in your bank account that day, either. Set it up for the same day, same amount -- good times and bad.
- Don’t stop your DCA approach when the markets take a nosedive. If you still believe in your investments, keep investing. Remember, in a down market you are buying more shares of a good investment, cheaply.
Washington Wealth Advisors Can Help with Your DCA Approach
The DCA approach is about building wealth steadily, consistently and with discipline over time. It’s about creating and strengthening good money behavior. When you do this for 10+ years and see your accumulated balance, you won’t care that you missed the best day in the market in 2022.
If you are interested in learning more about a Dollar Cost Averaging approach for yourself, we would welcome a conversation to see if it should be part of your overall investment strategy, tied to your unique goals. Washington Wealth Advisors can help you determine how much you should invest each month and how those investments should be directed.
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