During the holidays, we think about spending time and reconnecting with family and friends, cozying up by the fireplace, enjoying each other’s company. We also tend to spend quite a bit of money this time of year, on everything from gifts to new year’s resolutions (think gym memberships). In a typical holiday season, we don’t worry too much about these expenses; however, this year’s holiday season is a little different. Many of us are worried this season about what the economy will be doing the next few months and how it will affect their investments. As a reminder, markets are cyclical, they go up and down in what seems like a never-ending cycle.
Historically, the market has healthily grown and outperformed most other types of investments in the long term, despite these kinds of dips. One of the best ways to take advantage of turbulent times like these is to do what is called Dollar Cost Averaging (DCA).
How to do DCA
Consistently buy your investments on a monthly basis to help avoid the pitfalls of economic downturns by buying at very low prices when the market is down. You are essentially buying the same investments you were previously, but at a discount when value is depressed.
Why do DCA
The trick is to keep buying/contributing during these downturns, so when the market rebounds, all the investments you purchased through a recession, whose value may be depressed due to market conditions, theoretically will rebound with the market.
Now that the holiday season is behind us, consider doing DCA if you are not already doing so. It may help remove your worries about how the current economy is affecting your retirement balance.
Source: Retirement Plan Advisory Group