Dollar Cost Averaging: Letter From the President
If you are an investor, however, who uses dollar cost averaging, the market downturn is an opportunity to make money. Learn more about dollar cost averaging here.
Posted On: 2/2/2016 11:07 AM
What a wild ride January was in both the stock and bond markets. The New Year really began with a bang, losing 1100 points in a week. Even the pros were divided as to what triggered the severe downturn. If you are an investor, however, who uses dollar cost averaging, the market downturn is an opportunity to make money.
What is Dollar Cost Averaging?
If you are still working and contributing to a 401(k) or 403(b) plan, you are an investor who is averaging your cost by systematically adding to your current investments. It is called dollar cost averaging and it is powerful tool because it is the simplest and one of the most useful investing techniques. It takes the emotional component out of making investment decisions.
How Does Dollar Cost Averaging Work?
How does dollar cost averaging work? Every paycheck a contribution is made to your plan and is invested automatically into the mutual funds or other investments that you have chosen. For example, if you have selected four mutual funds, 25% of each dollar will be allocated to those funds. In January you would have purchased shares at a lower price than perhaps in December and increased the number of shares you could buy. If the market rebounds in February, you will pay more for those same shares. So the advantage of dollar cost averaging is that you smooth out the price you pay for each share without having to time the market!
How to Use Dollar Cost Averaging to Your Benefit
A 401(k) and 403(b) may be the largest asset an investor owns and while they benefit from dollar cost averaging, many companies do not offer investment advice on how to select or monitor the list of investments. That’s where OMC can help. In addition to our regular services, we offer a specialized service that can benefit you even if you are still working. We assist you with selecting investments that make sense for your financial situation based upon the options available and monitor your 401(k) and 403(b). Now you don’t have to wait until you retire to have your nest egg watched over.
To discover how we can help you use dollar cost averaging to benefit your portfolio, let's talk.
