Now what I do recommend, instead of trying to time the market, is so-called dollar-cost averaging.
Without knowledge of the future, I can reduce my pricing risk by dollar-cost averaging my investment.
One option to help savers get back into the market is dollar-cost averaging, which works best with mutual funds.
Dollar-cost averaging means investing a constant dollar amount on a regular basis.
FORBES: Make Sure To Sell The Right Stocks At The Right Time In Retirement
Without question, dollar-cost averaging is a powerful investing technique for accumulation planning.
FORBES: Make Sure To Sell The Right Stocks At The Right Time In Retirement
This could include employing dollar-cost averaging or automatically rebalancing your portfolio when particular asset classes gain or lose value in comparison to others.
So stay on your plan if you have plan, and you will pick up some of those bargains if you are dollar-cost averaging.
"What dollar-cost averaging does is minimize regret, " he explains.
The technique is known as dollar-cost averaging, and it's essentially what you do when you invest a set part of your paycheck every pay period via a 401(k) or other employer-sponsored retirement plan.
The nice thing about dollar-cost averaging is that by putting the same dollar amount in, you buy more shares when the price is lower and that's in my view the only way to do it.
Dollar-cost averaging forces us to do what doesn't come naturally, or as Mr. Malkiel puts it, "exactly what our emotions tell us not to do" buy more shares when prices are low and fewer when prices are high.
Although history suggests you might do better diving into the market with a lump sum (because, over the very long haul, markets have gone up more than they've gone down), dollar-cost averaging has a lot of appeal these days.
During the strongest markets, though, dollar-cost averaging produced 19.2% less wealth than lump-sum investing, while during periods of average market performance, averaging in produced 3.6% less wealth meaning that, in typical markets, dollar-cost averaging will cost you 3.6% of your holdings.
Regardless of whether the entire amount was invested on that day or invested over a period of time, the portfolio rose in value if dividends were reinvested. (I intend to publish the study, which compares dollar cost averaging to lump-sum investing in the April AAII Journal).
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