Increasingly, people are taking control of at least a portion of their investments. New financial technologies are making this easier than ever before. While improving access to traditional and alternative assets is a good thing, you still need a strategy on how to accumulate and manage your investments. Dollar cost averaging is one that has stood the test of time.
Most individual investors do not have the resources to hire top notch analysts and investment advisors to guide them into the “perfect” time to go “all in” on an investment. And the truth is, in today’s volatile markets the best analysts rarely get it right.
Rather than have an analyst try to get it perfect, how about asking them to help you be diligent? Smart? Patient? Those are qualities that are sometimes in short supply in the go-go world of finance, however decades of evidence show that exercising those qualities can produce tremendous profits. One need look no further than successful investors such as Warren Buffet, who accumulates his positions in companies over extended periods of time.
Sean Williams of the Motley Fool explains three primary reasons to use dollar cost averaging.
- It helps you avoid the temptation to “time” the market. It is unlikely you will beat the best analysts and they rarely get the timing perfect.
- It removes emotions from investing. Money has a powerful emotional component to it. Removing it from day-to-day investment decisions is to remove what can become an irrational variable.
- It helps smooth out volatility. Wide, unexpected swings in an investment can trigger fear or exuberance (see #2) causing you to buy or sell just at the wrong moment.
As yet another legendary investor, Jesse Livermore said, “Be right and sit tight.” Pick your investment. Set your accumulation strategy. Unless the fundamentals change, keep moving forward. Over the long run, it works.
We’d like to add a fourth reason why dollar cost averaging is a smart way to accumulate investments.
You have a life to live. Today’s technology makes it easy to set up an accumulation strategy for your investments and to go on living it.
As we outlined in a recent post, it looks like now is a good time to use dollar cost averaging to accumulate physical gold and silver. Be right. Sit tight. Use smart technology to make your life easier. Put our Automatic platform to work for you.
(image credit André Spiegel, “Autopilot“)