The stock market is a scary place to invest your money these days, however there really isn't much of an alternative with fixed income paying almost nothing so what to do?
I suggest selling your stock mutual funds or etf's when you are feeling very uncomfortable or giddy with your investments and then jumping right back in via dollar cost averaging.
Dollar cost averaging is the process of buying on a regular basis or in increments so as to ideally get a good average price and dollar cost averaging works well with the volatility that we have been witnessing lately.
Sure you may miss out on some of a rally but you may miss out on some of the downturn too?! This strategy is not for everyone and does entail some fees but bottom line is that it'll keep you in the stock market to some extent and keep some of your sanity as well.
Of course, if you have any questions, remember that I am a money coach and am happy to answer questions or concerns you may have. Email me at scott@howtheinvestmentbusinessreallyworks.com.
Showing posts sorted by relevance for query dollar cost. Sort by date Show all posts
Showing posts sorted by relevance for query dollar cost. Sort by date Show all posts
November 28, 2011
April 21, 2010
Dollar Cost Averaging Is Why 401k's Work and Buying Individual Stocks Doesn't
Dollar cost averaging (and time) is exactly why 401k's are so successful. People mindlessly (in a good way) add to a diversified portfolio when its up, and when its down.
Buying more when your individual stock goes down is exactly why people rarely make money outside of 401k's. You know the scenario, you buy XYZ and it goes down, you buy more and more and again and again until your portfolio has ten or fifteen losers in it. You hold until breakeven (if you are lucky) and sell, whew, only to try again, most times with the 'aid' of a stockbroker.
Thats why I tell people to buy no load mutual funds or etf's and treat monies inside and outside of 401k's the same. Its a winning strategy so don't mess with it.
Buying more when your individual stock goes down is exactly why people rarely make money outside of 401k's. You know the scenario, you buy XYZ and it goes down, you buy more and more and again and again until your portfolio has ten or fifteen losers in it. You hold until breakeven (if you are lucky) and sell, whew, only to try again, most times with the 'aid' of a stockbroker.
Thats why I tell people to buy no load mutual funds or etf's and treat monies inside and outside of 401k's the same. Its a winning strategy so don't mess with it.
August 23, 2012
Almost Buy And Hold
If you are like most investors, you've tried pretty much every strategy there is to make money in the stock market.
I hope you have come to the conclusion that trading is a waste of time and money and alot easier on paper than in the real world.
So you've decided, ok that's it, I'll just buy and hold, since most of the stocks I sold before are higher today. You're getting warmer :)
No, the truth is that the best 'strategy' for making money in the stock market is somewhere close to buy and hold but not to the point of buying, hoping and putting your head in the sand.
The secret is threefold:
- buy quality individual stocks, funds or exchange traded funds
- dollar cost average, that is buy more with time
- buy and hold but with exceptions
By exceptions, I mean buy and hold but occasionally, it makes sense to sell and stay away for awhile. Buy back sometime in the future. That doesn't mean sell today and buy back later in the day or even next week (that is trading and all traders lose money). It means buy and hold but use your common sense and sell occasionally all the way to cash. This gives you a fresh outlook, I promise.
The problem is when to buy back in and admittedly that's tough to know. It does take some market savvy. The newsletter INVESTING OPINION is designed to help you (and your financial guy, if you have one) decide when might be a good time to sell, when might be a good time to dollar cost average and when might be a good time to buy back in.
The INVESTING OPINION is your second set of eyes and ears on the market. As the PGA slogan says, these GUYS are GOOD!
February 23, 2012
The INVESTING OPINION enewsletter now open to public
The INVESTING OPINION and has been hailed as the best new newsletter having called the top in stocks in October 2007 and the bottom in March 2009. We told subscribers to sell equities and go to cash in October 2007 and to stay in cash until October 2008 at which time we suggested it was time to start dollar cost averaging back into equities.
The INVESTING OPINION favors a modified buy and hold strategy (buy and hold with periods holding only cash) and is suitable for investors with considerably assets. This is not for traders or those looking to get rich quick. We don't sell investments. We don't sell insurance. We don't sell anything! We don't have an agenda. Instead, investors will be told;
- when to buy
- when to sell
- when to dollar cost average
- what percentage in equities and fixed income
February 8, 2012
How Spock Would Invest
 |
| Spock |
Simply because his unfailing logic would force him to look at the options and make the right choice.
Choice #1 - pay someone else to 'manage' your money and skim 1-2% off the top every year regardless of how they compare to the market averages
Choice #2 - 'manage' your account by trading constantly, making moves based on the daily news, buying into newsletters that claim they have the 'picks' you need to beat the market and/or buying some crazy software for thousands of dollars that can help you beat the market
Choice #3 - dollar cost average buy into a very low fee diversified ETF or mutual fund as often as you can
Spock would have no problem figuring out that the logical choice is #3. He knows that simple strategy will have his portfolio in the top 10-15% of all investors and will have achieved it without spending valuable time, money or stress.
July 2, 2010
The Market Is Like a Yo Yo (and thats good)
Ok, its now July and the first half of the year is in the books and the stock market is down over 7%. Thats not so great. Its worse if you paid some financial 'professional' some percentage or fee for those same results.
The stock market is like a yo yo and very long term, its like a yo yo you are holding while going up stairs. No one likes the downturns but they are necessary for you to make money (as long as you have been dollar cost averaging).
Just keep picturing yourself closer to retirement closer to the top of the stairs having reaped the benefits of long term investing, not being sucked in to short term trading scams or get rich quick schemes.
Stay focused and you will get there.
The stock market is like a yo yo and very long term, its like a yo yo you are holding while going up stairs. No one likes the downturns but they are necessary for you to make money (as long as you have been dollar cost averaging).
Just keep picturing yourself closer to retirement closer to the top of the stairs having reaped the benefits of long term investing, not being sucked in to short term trading scams or get rich quick schemes.
Stay focused and you will get there.
January 25, 2012
Direct Stock Purchase Plans
Most of the biggest companies are also the best performing stocks. While I'd rather see small investors dollar cost average into a diversified index fund, there are some people who insist on buying individual stocks and there is one solid advantage, virtually no fees at all.
One very under reported way to accumulate shares of your favorite company, $50 or $100 at a time is through Direct Stock Purchase Plans or DRIP's which is simply buying stock directly from the company itself. Actually you will be getting the shares through what is called a transfer agent who physically handles stock shares. No middleman. No brokerage account. You get your statement from the company.
DRIP actually stands for dividend reinvestment program which is exactly what happens to your dividends automatically, they buy more shares directly from the company.
This is a great way for investors to avoid the brokerage firms which is why you will never hear this from your stockbroker or financial adviser.
Almost every company in the S&P 500 has a DRIP program, Google for the toll free number, call for shareholder services and get started, you can do it online as well for some.
Let me know if you need some help, money coaching available or send me an email. Happy to help!
One very under reported way to accumulate shares of your favorite company, $50 or $100 at a time is through Direct Stock Purchase Plans or DRIP's which is simply buying stock directly from the company itself. Actually you will be getting the shares through what is called a transfer agent who physically handles stock shares. No middleman. No brokerage account. You get your statement from the company.
DRIP actually stands for dividend reinvestment program which is exactly what happens to your dividends automatically, they buy more shares directly from the company.
This is a great way for investors to avoid the brokerage firms which is why you will never hear this from your stockbroker or financial adviser.
Almost every company in the S&P 500 has a DRIP program, Google for the toll free number, call for shareholder services and get started, you can do it online as well for some.
Let me know if you need some help, money coaching available or send me an email. Happy to help!
July 26, 2010
Ten Stock Market Myths That Just Won't Die
Here is a great article I just saw online from the Wall Street Journal, I couldn't say it better myself.
At times like this, your broker or financial adviser may offer words of wisdom or advice. There are standard calming phrases you will hear over and over again. But how true are they? Here are 10 that need extra scrutiny.
1 "This is a good time to invest in the stock market."
Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir — step this way!"
2 "Stocks on average make you about 10% a year."
Stop right there. This is based on some past history — stretching back to the 1800s — and it's full of holes.
About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.
3 "Our economists are forecasting..."
Hold it. Ask your broker if the firm's economist predicted the most recent recession — and if so, when. The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.
4 "Investing in the stock market lets you participate in the growth of the economy."
Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.
5 "If you want to earn higher returns, you have to take more risk."
This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.
6 "The market's really cheap right now. The P/E is only about 13."
The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile — they're elevated in a boom, and depressed in a bust.
Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.
7 "You can't time the market."
This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.
If you invest in shares when they're cheap compared to cash flows and assets — typically this happens when everyone else is gloomy — you will usually do very well. If you invest when shares are very expensive — such as when everyone else is absurdly bullish — you will probably do badly.
8 "We recommend a diversified portfolio of mutual funds."
If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice. But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.
9 "This is a stock picker's market."
What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns — for good or ill — has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?
10 "Stocks outperform over the long term."
Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."
And I would add given the above ten myths, that a person shouldn't even really consider investing period unless they have paid off their house!
At times like this, your broker or financial adviser may offer words of wisdom or advice. There are standard calming phrases you will hear over and over again. But how true are they? Here are 10 that need extra scrutiny.
1 "This is a good time to invest in the stock market."
Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir — step this way!"
2 "Stocks on average make you about 10% a year."
Stop right there. This is based on some past history — stretching back to the 1800s — and it's full of holes.
About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.
3 "Our economists are forecasting..."
Hold it. Ask your broker if the firm's economist predicted the most recent recession — and if so, when. The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.
4 "Investing in the stock market lets you participate in the growth of the economy."
Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.
5 "If you want to earn higher returns, you have to take more risk."
This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.
6 "The market's really cheap right now. The P/E is only about 13."
The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile — they're elevated in a boom, and depressed in a bust.
Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.
7 "You can't time the market."
This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.
If you invest in shares when they're cheap compared to cash flows and assets — typically this happens when everyone else is gloomy — you will usually do very well. If you invest when shares are very expensive — such as when everyone else is absurdly bullish — you will probably do badly.
8 "We recommend a diversified portfolio of mutual funds."
If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice. But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.
9 "This is a stock picker's market."
What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns — for good or ill — has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?
10 "Stocks outperform over the long term."
Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."
And I would add given the above ten myths, that a person shouldn't even really consider investing period unless they have paid off their house!
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