Limit Risk in Your Portfolio – Is Dollar Cost Averaging Right for You?

With issues like “Brexit,” the United Kingdom possibly leaving the European Union, negative interest rates and monetary stimulus occurring overseas, China changing their economy as well as dealing with a record number of housing vacancies, a drop in auto sales and factory orders, debt, and tensions rising worldwide, it is understandable that you may feel like the market is due for a tumble! But despite all of the recent negative news, there are several positive occurrences happening now, such as low inflation, low interest rates, and stronger employment numbers in the United States. Concerned by numerous factors that can affect the global economy, many investors are deciding to put their money into cash-like investments in an effort to limit their exposure to risk. This may be beneficial for some investors, but you should also consider another option that may decrease your exposure to risk.

If you are going into the stock market with a long-term objective, then dollar cost averaging makes sense. For instance, if you and/or your employer are contributing to your employer-sponsored retirement plan, then utilizing the dollar cost averaging method may be an option you should consider. To dollar cost average, you continually invest by purchasing stock shares over a period of time, and then you average the price you pay for the investment over that time period, therefore taking some of the short-term risks off of the table. If you were to stay on the sidelines in a cash-like investment, you would lose some of the benefits of being in stock-like investments, such as receiving dividends and higher potential returns over the long term versus bonds and cash.

If you would like to discuss whether dollar cost averaging should be utilized within your own portfolio, please contact our office to set up an appointment.

Categories: