Dollar-cost averaging. It’s probably the most boring financial term ever. (We’re working on coming up with a new term. Anyone have any ideas? Anyone?)
Snooze-inducing as it sounds, dollar-cost averaging is a super important technique that everyone should be using to invest. Why? Read on.
[01:55] What dollar-cost averaging means
[03:30] Why timing the market doesn’t work
[04:24] The key to investing: don’t think about it
[05:20] Some musings on stock market fear
[08:14] Bring on the volatility!
[09:34] Start low and stick to it
Brace yourself: we get topical in this episode. How could we not? Unless you’ve been living under a rock, you’ve probably been bombarded with minute-by-minute updates on COVID-19, aka coronavirus. Warnings against travel. The number of cases in the United States and worldwide. The number of deaths from coronavirus. And its impact on the stock market.
There’s nothing wrong with staying up-to-date on important news — and we’re huge believers in washing your hands to prevent germs from spreading — but the point is, staying glued to the media 24/7 is not healthy, especially for your financial strategy. This kind of media consumption can trick you into thinking that the perfect time to invest is always just around the corner. “Well, if the stock market is down right now thanks to the coronavirus, it’ll go much lower soon! Then I’ll jump in and invest!”
Trying to time the market doesn’t work, folks. As Danielle said in this episode, you can always come up with a reason to wait to invest, whether the market is high or low. Rather than overthinking your investment strategy, or trying to find the “perfect” time to start investing, you need a consistent strategy that will weather the ups and downs of the market. That’s what dollar-cost averaging does for you.
If you need a refresher on what dollar-cost averaging is, here you go: you invest the same amount of money each month, no matter what the market is doing. That’s really all there is to it! Essentially, dollar-cost averaging makes you buy less when the market is higher, and buy more when the market is lower, as Dustin put it. That’s the best way to invest. And it works best when the market does fluctuate a lot.
Ready to get started? Then stick with a low dollar amount. Figure out what your budget will allow and automate it with your bank so you don’t have to worry about it. From there, increase your monthly purchase amount when you can afford to. This kind of commitment to investing will pay off for you now, and especially for your future self.
Another note: don’t check your accounts daily. Especially when the markets are volatile. Just trust us on this one.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
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