A quick rundown of dollar-cost averaging

December 22, 2020

We’re offering a series of articles designed to address some often-asked investing questions. We’ll start with the most frequent.

Question: How do I time the market?

Answer: Don’t. Go for consistency and discipline instead. Experts recommend what’s known as “dollar-cost averaging.”

Playing the game of picking the “right time” to buy into the market is a tough game to win. One way for both beginner and experienced investors to build wealth over time is to be consistent and disciplined. One of the best ways to do that is to dollar-cost average your investments. With dollar-cost averaging, money is systematically invested in the market regardless of what’s happening with the market. This means you choose a frequency and a dollar amount, then push play.

This way of investing has three key benefits:

  1. It provides investors the opportunity to avoid “bad timing” of the market. Rather, investors who dollar-cost average take advantage of all market conditions — while most likely lowering overall investment risk.
  2. It removes the emotion from investing. Continuing with your investment plan regardless of the roller coaster helps investors stay in — rather than selling — when adverse market conditions show up, then potentially capitalize on the rebound.
  3. It provides a way to comprehensively rebalance your portfolio back to the asset allocation you’ve set.

Whether you’re a seasoned investor or someone just beginning, it’s important to set a plan and begin. Getting started with $10 per week can make a big difference in the future. There will be risk with investments, but easing your money into the market over time will help make your investment decisions easier and lower your overall risk.

We hope we’ve given you some helpful pointers regarding your investments. To recap, constant and steady beats attempting to second-guess the market, and the time to begin is now, even with a small amount.

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