Dollar-Cost Averaging and Getting Invested








This is Brad Barrie, Chief Investment Office and Portfolio Manager with Dynamic Wealth Group.  Welcome to this market and economic update. In this video, we’ll discuss perhaps the most important topic: how to get and stay invested.

This is especially important right now with the market near all-time highs. On the one hand, some investors may be worried that we are “due for a pullback.”

On the other hand, there has been significant uncertainty not just this year, but over the past several years. This has likely kept some investors on the sidelines as well.

At the same time, most investors know that the best thing to do is to simply get invested in the first place. Over the next few minutes, we’ll discuss one way to approach doing this in a sustainable way.

Let’s begin with this chart which highlights two important topics.

The first is lump sum investing which is simply investing a certain amount all at once. For example, if you received an annual bonus, an inheritance, or maybe cash from the sale of a business, you might want to simply invest it in the market at one time.

Of course, most investors are worried about doing so because they wonder if there might be a better time to buy later on.

This is where dollar-cost averaging can help. Rather than buying all at once, you can divide your purchases on a regular basis and do so regardless of what markets have done. This creates discipline in the investment process and relieves the investor from having to follow markets on a daily basis.

This chart shows hypothetical returns for an investor with an initial $100,000 investment in the year 2000. Dollar-cost averaging would have helped to maintain the portfolio’s value during the dot-com crash and housing bubble since most of the portfolio would still have been in cash.

Over time, lump sum investing would have outperformed due to the strong bull market. The question though isn’t which one is objectively better at the end – it’s which one would allow you to stay invested and feel confident the whole time.

This might be top of mind for many investors since the market is near all-time highs. In fact, the S&P 500 has achieved 25 new all-time highs so far this year.

History shows that this is really not unusual during bull markets. By definition, as the market rises, it will naturally hit new all-time highs.

So, this does not necessarily mean that the market is “due for a pullback.” The long bull market from 2009 to 2020, for instance, saw many years that experienced dozens of new highs.

That said, being at these levels can still make investors nervous. Most recently, the markets experienced a pullback in April due to uncertainty around the Fed. However, they bounced right back in May. So, once again, it’s important to not watch every short-term market move.

Finally, this chart shows the importance of getting invested. Historically, waiting for a pullback would have backfired more often than not.

For example, waiting for a 5% pullback has tended to mean that when it does occur, the market is at a higher point. It would have simply been better to have invested in the first place.

So, this takes us back to the idea of dollar-cost averaging. For investors who are nervous about getting invested all at once, this can help to get them started toward their goals while also overcoming a psychological and emotional hurdle.

If one is uncertain if they should dollar cost average or lump sum invest, we would go back to our philosophy on Preparation over Prediction.  Without a crystal ball, one cannot be certain which approach will yield the best absolute results.  It’s really more about one’s comfort level.  And lastly remember, in this situation, it doesn’t have to be all or none.  Nothing stops someone from doing both!  Lump sum a portion and dollar cost average a portion as well.

We’ve only scratched the surface on this important topic, but I hope you found these insights valuable.   If you are a financial advisor and would like more information on our Multi-Dimensional Approach towards asset management, please visit our website DynamicWG.com, or reach out directly by emailing us at:  Info@DynamicWG.com.  If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor if so desired.   Until next time, take care everyone, and make smart, logical & fact-based financial decisions.








Disclaimer:

Clearnomics and Dynamic Wealth Group, LLC are not affiliated entities.  No part of this should be taken as investment advice.  Consult your financial advisor for specific investment recommendations tailored to your specific situation. 

Dynamic Wealth Group (“Dynamic”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Dynamic by the SEC, nor does it indicate that Dynamic has attained a particular level of skill or ability. This material prepared by Dynamic is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Opinions expressed by Dynamic are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Dynamic, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.

Dynamic does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.

Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Past performance is no guarantee of future results. Actual returns may be lower.

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