Every time we turn around the stock market is rising - or falling. We would love to time what we buy to get in at the bottom of the market and sell out at the top. After all, that would maximize how much money we make. The problem is that timing the market is incredibly hard. Even the most knowledgeable, most sophisticated professional investors can’t consistently predict these moments. So, what do you do?
In your 401k plan, you contribute to your retirement account every payroll period. When you allocate those dollars to buy more shares of the investments you like, you buy some at higher prices per share when the market rises and some at lower prices when the market falls. This is called dollar cost averaging and it helps balance your costs as you accumulate more shares for the long term without worrying about the spikes and dips the market takes in the short term. In other words, attempting to time the the market often increases stress and isn’t typically an effective strategy. Instead, we recommend that you contribute steadily to your account, increase your savings rate when you can, and stay the course.
But remember, this is a savings strategy and not an investment recommendation or guarantee of a positive return.
Needless to say, your situation is unique based on your age, your income, your savings and needs for the future. If you would like to talk about your personal financial path, don’t hesitate to reach out. We’re here to help.