Wake up! It's time to re-visit your DCA scheme again!
Here we are after a crazy few months in 2018. Man what a roller coaster ride it has been! I am of course talking about the stock market. (See below for the ups and downs of it)
In November of 2017 I wrote an article suggesting it was time to update your DCA (Dollar cost averaging) allotment based on some data. Mainly, all I implied was that it was time to kick your contributions into a higher gear to keep up with the markets' stagnation at that time. Assuming that you had done so, you would have made a healthy return on your investment and subsequently lost said return in Feb of 2018 then gained a majority of it back in the same month. What a ride right! Short term market performance notwithstanding, it may again be time to review your comfort level with the markets, your future goals, and to use that data to determine how much and often you would like to invest.
When looking at the above chart, you can see that for the last 30 days the DJIA is down ~4.5%. So again I would suggest that you keep investing near the high end of your comfort level for the time being.
Funny thing is, this is not a change from a few months ago because of the interval I have considered. If I had evaluated my contributions in December and January, while the market was growing extremely fast, a DCA scheme would have prompted me to not invest as much at that time. Therein lies an inherent issue with setting up automatic contributions. They are, um, automatic and do not require you to do anything to babysit them. So when you get busy and don't care about market performance, you just let them roll.
Perhaps if you view constantly investing in the same thing boring (as I do) then you would prefer to "buy the dips" with some cash that you have set aside for that purpose. The risk to that scenario is that you would not buy when during a bull run that is not over, since you would have stood to make money in the bull had you not been waiting for a dip. The other risk is that if you "buy a dip" right at the beginning of a recession or downturn just when it is getting started, you will lose anyway. Also you would have to ask yourself the question- how big of a dip would you wait for to buy?
Another inherent problem with buying dips is that you would have to save up a bit of money, say at least 2 months of normal investment to save it in order to buy. And while you are saving this cash and waiting to deploy, you are definitely trying to time the market at least 2 months in advance, which is a near impossibility. Most folks can't even predict what will happen in a few hours, and if you set yourself up by burning 2 months in advance then logically you have already waited hoping that a dip will place the market lower than those past 2 months have gained, and that's a big gamble.
Here are my two cents on these issues with market timing
- Time in the market is king no matter how you want to slice it up. It is better to invest consistently and in shorter intervals than to try to time the market in any sense. This is of course, if you are planning on being in there for the long haul, which you should be.
- If you are already financially independent and without concrete financial needs that you aren't meeting with your current budget and lifestyle, then who cares if you buy dips or use DCA or even invest at all? You have what you want already right? Just stay the course.
The purpose of this article was not only to have you check in on your automated monthly contributions into the stock market. It was also to give you a heads up that there are other ways to go about investing if you are thinking that DCA is boring. The underlying current you are detecting here is a drive to continue to develop investing prowess and techniques that will make you comfortable saving more and eventually realizing the gains that come from it. Perhaps you are just more comfortable doing the set and forget method of monthly automatic deposits, and that is just fine! However if you do get bored or want to pay attention to your money more, you can get more involved without putting yourself at too much risk by utilizing DCA or trying to buy dips in the market. Finances don't absolutely need to be boring do they?