Balance out investment volatilitySubmitted by Agrawal Associates on September 12th, 2017
September 13, 2017
With no crystal ball to indicate when the markets will rise and fall, investors need to balance their risk and potential reward. Dollar cost averaging is one way conservative investors can participate in the constantly fluctuating market and lower their overall exposure to risk.
Not everyone has the capacity for a lump-sum investment. Instead of allocating a fixed amount of money to invest, dollar cost averaging involves regular contributions over a set period of time. A $12,000 lump-sum purchase may be hard to access; however a $1,000 monthly contribution over 12 months can be easier to manage.
This prudent principle allows investments to be made over the ups and downs of the market, rather than the full amount at a low or high point. However, if markets generally trend upwards over a period of time, it is possible that investments made early in the upwards trend would be made at lower purchase prices than the investments made later in the schedule.
With many investments, the longer you are active, the better chance you have for positive long-term results. While markets move up and down in the short term, in the long term we generally see overall growth with conservative investments. This means that investors who invest early will likely see gains supporting their overall investment goals.
Consult your advisor
For risk-adverse investors with limited access to lump-sum assets, dollar cost averaging their investments over a fixed time horizon may be an effective tool to gain exposure to the market. Speak to your financial advisor to learn if this prudent principle for investing is one that would benefit your long-term investing and financial goals.
- Agrawal Associates