If you have turned on the TV over the last month, I’m sure you have heard all about the coronavirus. The virus is impacting lives all across the world, and financial markets haven’t been spared either. Market volatility is very high, and stock prices have shifted downward. However, if you have excess cash above your cash reserves that could be used for retirement or other general long-term investing, this could be a good time to invest for your long-term goals.
Nobody knows when the market volatility will end, so a good way to invest in a downturn in the market is through dollar cost averaging. Dollar-cost averaging is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase.
Let’s say you have $10,000 to invest. One effective way to invest that money without trying to time the market would be to invest $2,500 each month for four months. The purchases occur regardless of the asset's price and at regular intervals; in effect, this strategy removes much of the guess work of attempting to time the market in order to make purchases of investments during market volatility.
The key to investing is being patient and thinking long-term. If you have excess cash that could be invested for retirement or other long-term goals, contact us to find out if Dollar Cost Averaging is right for you.