The election has come and gone. In fact, we’re almost a month out. Even before the election, and any election, I had my plan already developed. I am dollar-cost averaging, and will continue to do so after this election, the next election, and the one after that. And everywhere in between.
What is Dollar-Cost Averaging?
Dollar-cost averaging is contributing to an investment on a schedule. Most people choose to do monthly or bi-monthly. For example, someone putting $500 into an index fund on the first of every month is using the strategy.
A real estate investor who sets aside $1,000 per month to buy future properties is also doing it. The easiest way to do it is to set up an automation for the money to be automatically withdrawn from a paycheck or checking account and put into the investment vehicle. This is also known as automation, and can be part of paying yourself first.
Related: Dollar-Cost Averaging: Why I Do It and 7 Reasons You Should Too
Dollar-Cost Averaging: An Acknowledgement
Dollar-cost averaging is an acknowledgement that you cannot time the market and aren’t attempting to. It doesn’t matter what is going on around the world, you will continue to contribute the same amount on your chosen schedule (until you increase your contributions).
It really doesn’t matter if the events in the world are good or bad, your behavior will be the same.
In addition, trying to quantify what is good or bad and how it will affect the financial markets is speculation. Something that appears bad on the surface can actually send the markets in an upward direction, and vice versa. You just never know.
Doesn’t Matter What the Investment Is
DCA works for many different types of investments. Whether you’re in index funds, individual stocks, real estate, crypto, etc., it’s the strategy that takes timing the market out of the equation.
We can try to predict where these markets will go, and we all know there’s plenty of people online claiming to know, but nobody really knows. And if you think you can predict different investments, consider the following:
- Who predicted the Great Recession in 2008?
- Did you, or anyone you know, predict Bitcoin’s recent surge?
- What about the rapid fall (and rise) of stocks in 2020?
The Bottom Line: Dollar-Cost Average
I believe that dollar-cost averaging is the best available strategy we have at this time. With advanced analytics, the strategy may be replaced by a technology/strategy that doesn’t yet exist, but for now it’s the best one available.
Do you dollar-cost average? Have you ever tried to time the market?