If a person retires at age 62, he or she has probably been investing money for a good number of years, and has no doubt learned many lessons through trial and error. One important lesson that all financial investors should understand is whether, and how, to time the purchases and sales of stocks in their portfolio.
When the market is high, many investors feel good and buy stocks, assuming the trend will continue upward. When the market is down, investors tend to get scared, so they sell stocks. While it may seem counter-intuitive, the goal should actually be to buy low and to sell high.
Market volatility leads to investors’ emotions taking over, causing many to make illogical decisions regarding their portfolio. One solution is to utilize Dollar Cost Averaging, a method that avoids trying to time the market by putting a set amount of funds into a particular investment on a regular basis, perhaps monthly or quarterly. The investment is made regardless of what the market is doing. In a fluctuating market, this practice lets the investor purchase additional shares when prices are low and fewer shares when prices increase.
This strategy can be difficult to employ consistently, even for experienced investors. Nobody has a crystal ball; trying to time the market makes it difficult to determine when to purchase and sell stocks.
If you participate in an employer-sponsored retirement plan, like a 401(k) or a 403(b), you’re already utilizing Dollar Cost Averaging. The challenge is sticking with the strategy when the market declines; the advantage is that you’re able to purchase shares at lower prices. While Dollar Cost Averaging doesn’t guarantee a profit or protect against loss in a declining market, it’s still a steady, responsible approach to building your portfolio. Consider turning to a professional financial advisor for expert assistance. For more information about investing using Dollar Cost Averaging, please contact:
Timothy J. O’Connor, CFP
Senior Vice President - Investment Officer
2424 Lake Shore Drive
Woodstock, IL 60098
815-337-9470 / 800-323-7048