In this episode of Financial Clarity for Doctors, hosts Corey Janoff and Rachelle Vanderzanden, discuss one of the strategies used by many investors, dollar cost averaging. What is it? How does it work? Is it really better than investing lump sums of money? They may not be able to answer that last one for you, but learn more about it and decide for yourself!
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Dollar Cost Averaging Basics:
- Investing equal amounts of money at equal intervals over time.
- For example: Investing $1,000 on the first of each month.
- When share costs are higher, you will purchase fewer shares; when share costs are lower, you will purchase more shares.
- Lots of this happens automatically!
- When you invest in your retirement plan at work.
- When you make your IRA contribution annually.
- On the flip side, many folks argue that instead of spreading out contributions, you are investing money as soon as you determine it is appropriate to invest that money. Three out of four years the stock market is up, so why not just invest sooner than later?
- Ideally, you are doing both. Investing money immediately on a periodic basis as you have extra funds from your paycheck, etc.
There are lots of considerations when deciding whether or not to dollar cost average. Things like how large a lump sum contribution may be, whether you are reinvesting money that has already been invested, and what your risk tolerance is. Bottom line, do what you need to do to get money into the market and try not to make emotional decisions based on the world and your perception of current stock market values.
For more financial planning tips from Corey and Rachelle, you can reach out to them at podcast@thefinitygroup.com. They would love to hear your questions and ideas for upcoming episodes.
Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Finity Group, LLC and Cambridge are not affiliated. Cambridge does not offer tax or legal advice.