What stocks should I buy??? Is it better to reinvest my dividends??? Should I own bonds??? Wait, what is a bond? Wait, what strategy should I use to get my money into the market? Should you put it in all at once or, should I put in a little at a time?
The strategy you are looking for. It’s known as Dollar Cost Averaging or a DCA plan. The idea here is that you set a certain percentage of the money you want to get into the market, and you invest it at regular times. Imagine putting in 15% of your money, once a month. In 5-6 months. The theory behind this strategy is. If you’re investing in a volatile market, you can minimize your downside while potentially lowering the overall share price.
Here’s the reason why this isn’t, always the best strategy. Time in the market (IS & Always) will be the best strategy for long-term investors. A DCA strategy reduces the time your money is invested. DCA plans could outperform just getting the money into the market all at once. However, the conditions need to be just right. History has shown us this only happens about 10% of the time. The reason that time in the market will win out 90% of the time is because of how unpredictable it is.
Ten of the best trading days in the past 30 years came during a recession. Half of those were in a bear market. But wait, aren’t recessions and bear markets bad??? No, they are healthy functions of the market and the economy. As investors, we need to know this will happen. We must stay disciplined and ride them out. If you don’t, you’ll miss out on some of the biggest days in the market. If you weren’t invested during the top 10 days, over the last 15 years. Your returns would be cut in half. 🤯 This works out to only missing, one good day every 18 months. If you missed about 30 days, over the last 15 years. Your return would be negative. TIME IN THE MARKET always wins.
Yes, there are some short-term risks to getting ALL your money in the market at once. What if you put your money in and the market fails? All your money would go with it! On the other hand, what if you put your money in, and the market goes straight up? Okay, I am going to let you in on a little secret 🤫 the market is going to go up and down, no matter when you put your money in. and no one has a crystal ball to tell us the future. It might behoove you, to get as much money in soon as possible.
Make sure you always understand your own risk tolerances. We need to be prepared if the value drops. Also, be able to have the intestinal fortitude to trust the process. All of this said, there’s a place in your investment strategy for a DCA plan. It can mitigate the downside and can be the right option for the very conservative investor. However, if we are investing for the long term – time in the market has proven to yield the best results.