Over the past 35 years in my financial planning practice I've rarely seen such market volatility.
It's causing many to question the reliability of standard investing methods, however, as you can see from the chart below, an old standby like "dollar-cost averaging" might have helped make the most of this highly volatile period. It often helps 'smooth' things out as one invests over time.**
Dollar-cost averaging calls for investing a fixed amount in a particular security, such as a mutual fund, on a regular basis, usually monthly. In theory, you buy more shares when prices fall and fewer shares when prices rise. The result can be a lower average cost per share.
Although dollar-cost averaging is hardly foolproof, consider how it might have worked in this hypothetical scenario. Beginning just before the last big market crash - in January 2008 tracking a "hypothetical investor" as he invested $1,000 per month in a mutual fund that simply followed the S&P 500, we can see that by the end of the third quarter of 2009, he had contributed $21,000. But, his account had actually grown to $21,538.
His hypothetical 2.6% investment return seems fairly meager UNTIL you consider that the S&P 500 stock index LOST OVER 20% during this period.
Dollar-cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of fluctuating prices. You should consider your financial ability to continue making purchases during periods of low and high price levels.
However, this can be a very effective way for investors to accumulate shares to help meet long-term goals.
**(Past performance is not a guarantee of future results.) To see many handy financial calculators, and to read more on this and other financial planning topics, please go online to: http://www.DonLeander.com Don is currently accepting new clients (his direct line is 719-266-5335).We are committed to maintaining the highest standards of integrity and professionalism in our relationship with you, our client. We endeavor to know and understand your financial situation and provide you with only the highest quality information, services, and products to help you.People today have many financial investment opportunities that can bring the biggest bang for their buck. They can take advantage of options that range from cash management to investing for retirement. Like anything, each option carries risks and rewards that people need to be aware of. While just about anyone can give advice, a Certified Financial Planner, has the expertise that can be trusted.
It's causing many to question the reliability of standard investing methods, however, as you can see from the chart below, an old standby like "dollar-cost averaging" might have helped make the most of this highly volatile period. It often helps 'smooth' things out as one invests over time.**
Dollar-cost averaging calls for investing a fixed amount in a particular security, such as a mutual fund, on a regular basis, usually monthly. In theory, you buy more shares when prices fall and fewer shares when prices rise. The result can be a lower average cost per share.
Although dollar-cost averaging is hardly foolproof, consider how it might have worked in this hypothetical scenario. Beginning just before the last big market crash - in January 2008 tracking a "hypothetical investor" as he invested $1,000 per month in a mutual fund that simply followed the S&P 500, we can see that by the end of the third quarter of 2009, he had contributed $21,000. But, his account had actually grown to $21,538.
His hypothetical 2.6% investment return seems fairly meager UNTIL you consider that the S&P 500 stock index LOST OVER 20% during this period.
Dollar-cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of fluctuating prices. You should consider your financial ability to continue making purchases during periods of low and high price levels.
However, this can be a very effective way for investors to accumulate shares to help meet long-term goals.
**(Past performance is not a guarantee of future results.) To see many handy financial calculators, and to read more on this and other financial planning topics, please go online to: http://www.DonLeander.com Don is currently accepting new clients (his direct line is 719-266-5335).We are committed to maintaining the highest standards of integrity and professionalism in our relationship with you, our client. We endeavor to know and understand your financial situation and provide you with only the highest quality information, services, and products to help you.People today have many financial investment opportunities that can bring the biggest bang for their buck. They can take advantage of options that range from cash management to investing for retirement. Like anything, each option carries risks and rewards that people need to be aware of. While just about anyone can give advice, a Certified Financial Planner, has the expertise that can be trusted.