DCA — A few weeks ago, we ran a quote about investing in a bear market: You make most of your money in a bear market; you just don’t realize it at the time.
This tidbit of wisdom from Shelby M.C. Davis is categorically true, particularly during drawn-out periods of time when equities trade at a discount.
Buying stonks at all-time highs is not really something I’m into. Sure, my total portfolio value has taken a haircut this calendar year, but this is really an opportunity.
For those of us with a considerable time horizon, until we need to spend our hard-earned, smartly invested bananas, a sharp downturn in the stock market is basically a firesale. If you put your money into solid companies that will continue to put up strong revenues and earnings in the future, you’ll eventually generate some outsized returns.
These returns just don’t happen overnight.
Many of you are familiar with the term dollar-cost averaging. Purchasing shares of a particular asset or ticker symbol at a specified time increment can help limit the impact of short-term volatility on your purchase price and, in turn, your returns.
Think about it. When you’re purchasing shares of Amazon or Nvidia at a deep discount during a bear market, when their valuations eventually correct to some crazy forward P/E multiple, you’ve lowered your average cost per share by sticking with your convictions even in a down market.
Timing the market is really, really hard. Catching a falling knife without chopping off your little, er, fingies is also really, really hard. I don’t give financial advice - but we don’t recommend playing with sharp objects. You could get hurt.
A small fraction of Americans plans to increase their investment contributions this calendar year, less than a fifth. You could be a part of this portion of wise investors who are buying shares when they’re on sale.
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