Monday Morning Money Moment: March 27, 2017
Dollar Cost Averaging
Happy Monday Friends! I hope you all were able to relax this past weekend. I am going to open up this week discussing a very important topic. It is the one thing that can make you money in your investments whether or not the markets are up or down. It is called “Dollar Cost Averaging.” I will touch on quickly why it is important.
Many people get upset when the markets are down. Chances are these people are stock pickers. The difference between a responsible investor and a stock picker is consistency. It is hard to pick winning stocks over and over again. Many more fail than succeed. This is where being a responsible investor is to your benefit.
Instead of trying to pick stocks, set it and forget it. Make regular contributions and it won’t matter where the markets are at. “Well isn’t it better that the markets are doing better?” The answer to that is no, kinda. We all want the markets to go sky high all the time, sadly it isn’t possible. What we can do to mitigate the effects of market downturns is contribute frequently.
Let’s make it super simple to understand. You invest $200 in your TFSA every month. Your TFSA consists of several funds (ie: US funds, Canadian, Emerging Markets, etc.) You are troubled to see that you have lost a bit of money last month as the markets went down. Do not stress. Although your value went down a bit now when you make your deposit this month you have bought more units. When the markets go back up (and they always do eventually) you will now have more units of your funds. It is the people who duck and run in downturns that lose.
Those who stay put and stay consistent always win. Think of it as buying 1 pair of jeans at $100 or buying 2 at $150. What is the better deal? Simple eh? Stay strong, stay consistent, drown the noise. No one ever made a dollar off buying high and selling low.
Thanks for reading friends and tune in tomorrow for the “Tuesday Tip of the Week.” Have a great day friends!
“The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham
For more on Dollar Cost Averaging read my post about market uncertainty:
https://budgetboss.ca/brexit-trump-wynne-oleary-okay-so-what-do-i-do/
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Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at www.budgetboss.ca.