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How Dollar-Cost Averaging Can Help You Stay on Track in Volatile Markets

Markets can be unpredictable, but Dollar-Cost Averaging can help keep you on track! Consistent investing = consistent results.
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Brayden Thomas

Investing can sometimes be a challenging journey. Financial markets go up, down, and sideways, leaving investors questioning what their next move should be. However, it’s important to note that volatility is a key factor to consider in financial markets. In fact, it’s a part of the investing process that can actually work in your favor. One strategy that can help you ride out the ups and downs with confidence is Dollar-Cost Averaging (DCA), which we discuss below.

What Exactly is Dollar-Cost Averaging?

Dollar-Cost Averaging is a smart, straightforward approach to investing where you commit to putting a fixed amount of money into an investment at regular intervals—whether the market is up, down, or somewhere in between. This means you buy more shares when prices are low and fewer shares when prices are high. Over time, this approach can help smooth out the effects of market volatility while also lowering the average price of your investments.

SEE ALSO: Maximizing Wealth Through Tax Management and Portfolio Rebalancing

How Does Dollar-Cost Averaging Work?

Here’s a simple example: imagine you invest $500 each month in a stock or mutual fund. In some months, the price per share could be $100, which could allow you to buy five shares. The next month, the price drops to $90, so you buy a bit more—around 5.56 shares. And if the price rises to $110 the following month, you buy about 4.55 shares. DCA is a strategy that aims to manage risk by spreading out your investments over time. Over time, you’re able to avoid making large purchases at the wrong time and end up with a more balanced average price.

Consistency is Key

One of the best things about Dollar-Cost Averaging is that it forces you to stay disciplined. When the market is performing well, it can be an opportunity to consider investing. But when the market drops, the temptation to panic and pull back can be overwhelming. DCA aims to manage the emotional aspects of financial decisions. It encourages you to stick to a regular schedule, regardless of what’s happening in the market. This steady approach can help you stay on track to meet your long-term financial goals—whether it’s saving for retirement or building your wealth for the future.

DCA and Volatility: A Perfect Pairing

Let’s talk about market volatility for a moment. It can be intimidating when you see prices dropping, and even more so when you’re trying to figure out when (or if) you should make a move. Here’s the good news: Dollar-Cost Averaging is a strategy that can help manage volatility, but it’s important to remember that it does not eliminate emotional reactions to market fluctuations.

When the market drops, you may consider buying, but at lower prices. This means when the market eventually recovers, those investments you bought at a discount have the potential to appreciate, helping to boost your returns over time. Instead of trying to time the market and guess when the next downturn will hit, DCA keeps you focused on your long-term goals, taking the pressure off of making every decision a high-stakes one.

Stay Focused on Your Goals

The beauty of DCA is that it forces you to focus on your bigger picture goals, rather than the daily swings of the market. It’s easy to get distracted by the latest headlines or feel like you need to make a move when the market drops. But DCA helps you keep your eyes on the prize, consistently moving toward your financial goals, one step at a time.

SEE ALSO: Investing After Retirement: Why it Pays to Have a Strategy

It also helps protect you from making costly mistakes. For example, if you dumped a large sum of money into the market and it dropped right afterward, you’d probably be kicking yourself. DCA is a strategy that spreads out your risk over time, which may help manage the impact of market volatility.

Is Dollar-Cost Averaging Right for You?

For individuals with long-term financial goals, Dollar-Cost Averaging can be a strategy to consider. Staying consistent with your financial planning can be beneficial, especially when planning for retirement or other future milestones, but it’s important to remember that market conditions can impact your strategy. While DCA helps you manage risk, it doesn’t eliminate it. It’s still important to diversify your investments and make sure your portfolio aligns with your financial situation and risk tolerance.

If you’re unsure whether Dollar-Cost Averaging is right for you, Resolute Wealth Advisor is here to help. Our team works with you to develop a financial plan that makes sense for your unique needs, helping you navigate volatility with a strategy that fits your goals.

Let’s Get Started

Ready to stay on track with your financial future? Don’t let market ups and downs derail your progress. Let’s discuss how Dollar-Cost Averaging can potentially help you work towards your long-term objectives, while considering the market’s fluctuations. Contact Resolute Wealth Advisor today, and let’s start building the strategy that’s right for you.

The views expressed represent the opinion of Resolute Wealth Advisor, Inc. (RWA). The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While RWA believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and the RWA’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.

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