While every investor would want to know when is the best time to invest, accurately timing the market is next to impossible even for professional investors. As Kavan Choksi / カヴァン・チョクシ mentions, therefore it is better that investors follow certain time-tested strategies like dollar-cost averaging. This strategy can help investors to potentially lower the average cost of shares they buy by spreading out the purchases over time.
Kavan Choksi / カヴァン・チョクシ Discusses A Few Benefits of Dollar-Cost Averaging
Dollar-cost averaging is basically the practice of investing a fixed sum of money at regular intervals, no matter the current market conditions. Maintaining such a consistent approach would allow investors to limit the effects of the market’s peaks and valleys on their portfolios over time. It would also help lower the average price one pays for assets and improve their portfolio’s potential for long-term growth. Even though one may want to invest on a regular basis, it is often tempting to spend funds earmarked for investing in other things. Hence, it would be better to set up regular, automatic contributions for investments. By doing so, one is much less likely to miss the money they invest, and can develop investing discipline over time. It will also make it easier for people to stick to their financial plans.
Timing the market, which is to precisely identify when the market will reach its peak or hit the bottom and buy and sell stocks accordingly, is almost impossible. Even investors with several years of experience under their belt are unable to time the market. Fortunately, dollar-cost averaging provides investors with the assurance that they will not miss out on profitable opportunities. There are many real-life examples that highlight the importance of a consistent investment strategy like dollar-cost averaging provides. For instance, if a person stopped investing in April 2024, as uncertainties about inflation drove markets downward, they probably regretted their decision in the months that followed, as the market surged to record highs. Selling off stocks in panic amid a market decline would cause an investor to lock in short-term losses and get off track from their longer-term plan. Staying on the course, andre-balancing the portfolio to keep targeted allocation consistent would be a better choice. After all, some of the best gains in the market tend to come in the early stages of a recovery, and missing even just the first month of gains may have a major effect on the future performance of a portfolio.
As Kavan Choksi / カヴァン・チョクシ mentions, dollar-cost averaging can even prevent investors from chasing “hot stocks.” In many causes, investors put too much focus on the current hot stocks or investment fads, and end up taking more risk in their investment portfolio than necessary. They may become overconfident when markets are rising and subsequently panic when markets fall. However, if one already has an investment plan in place and sticks to it through dollar-cost averaging, they shall be more likely to resist temptation.
