If you have extra cash sitting in your investment and bank account, then you probably have asked yourself when is the right time to put the money to work. Is now the right time? Am I going to miss the next big move? What if the market tanks the minute I invest? AAAAHHHHHH!!!!
Clearly the above does not reflect a levelheaded mentality for getting cash to work. That is when dollar-cost averaging comes into play. This strategy helps take away timing the market and creates a disciplined approach to putting funds to work. Nobody can time the market perfectly, and while sometimes you may get lucky, putting together a thoughtful strategy with discipline takes the stress and emotions out of the game. The below information covers what dollar-cost averaging is, the rationale behind it, as well as our philosophy at Green Ridge Wealth Planning.
What is Dollar-Cost Averaging
Dollar-Cost Averaging (DCA) is an investment strategy that involves creating a consistent strategy to invest funds into the market. This approach spreads out the purchase price over time essentially creating a disciplined approach to risk management as well as taking out the emotional piece of thinking that is now the right time to be investing. If you had $12,000 to put into the market instead of investing it all at once, you would put $1,000 in per month for a year or $2,000 in per month for 6 months. This creates you buying investments at different price points, some high, some low, and some in the middle which creates an average price that you would have bought at. This helps mitigate the impact of short-term market fluctuations in your portfolio.
The Rationale: The biggest fear investors have is that as soon as they invest their money, they see a market decline. The point of dollar-cost averaging is to take this fear away or take away emotions and think logically by not putting the lump-sum to work all at once.
Green Ridge Philosophy: While we agree wholeheartedly with the above information, there are two important nuances that we take into account.
Dollar-Cost Averaging is a practical and effective investment strategy for managing risk, encouraging disciplined investing, and avoiding emotional decision-making. It is particularly beneficial for long-term investors who wish to steadily accumulate assets over time without being overly concerned about short-term market volatility.
Green Ridge Wealth Planning, LLC is a registered investment adviser. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment / tax advice. The investment / tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment / tax strategy for his or her own particular situation before making any investment decision. You are responsible for consulting your own investment and/or tax advisor as to the consequences associated with any investment.
The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of AUTHOR, may differ from the views or opinions expressed by other areas of Green Ridge Wealth Planning, LLC, and are only for general informational purposes as of the date indicated.