The U.S. economy is at the late end of a cycle where we are seeing stock prices increase higher compared to earnings. Stocks are up about 18% year-to-date, while earnings are up only about 6%. With prices the way they are, we’ve been asked if an investor should opt to dollar-cost-average into the market quarterly rather than monthly? In the long run, it makes little difference between investing monthly and quarterly. We still prefer investors to put money into the market monthly. On a quarterly basis, an investor is more likely to wonder if the next quarter will be worse than the previous quarter. It is very common to attempt to forecast the future based on the recent past, or in other words, trying to time the market.
Timing the market rarely works. Warren Buffett does not brag about timing the market. He brags about buying when the market is down. Even then, if you were a faithful investor who dollar cost averages into the market monthly, is it wise to hold back some of your cash to wait for the 5% market correction? Again, no. You cannot predict when such pullbacks may happen. By investing each month, you will, generally, lower your cost over the long run, buying more shares when the market is down and fewer when the market is high.
It is natural for investors to want to stop buying when the market drops, and for investors to want back in as prices increase. Working with a money manager can help prevent you from making foolish decisions of selling at market lows. We work with a very simple Ten Year Rule. Any money needed in the next 10 years should be in fixed investments. Any money not needed within the next 10 years should be invested in the stock market for the long term. When you sell at the bottom and buy again when the market is on its way up, you lose money that you’ll never recover, as the market often increases twice as fast as it falls. When timing the market you have to be right more than 50% of the time. We do not believe that is always possible.
At Henssler Financial we believe you should Live Ready, which includes understanding that stocks are a long-term investment. If you have questions regarding your investment strategy, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at firstname.lastname@example.org.