Knowing the exact best time to invest involves being really good at what’s called “market timing”.
If you get things correct and you begin investing at or near market lows, you can win big.
On the other hand, what if the markets never see a big pull back but instead move even higher? Well then investors sitting on cash would be missing out on potential capital appreciation.
We saw the latter happen coming out of the 2008 recession. Some investors remained in cash for too long, waiting for a market pullback that never came and as a result missed out on significant capital appreciation.
So for this reason we typically recommend an investment process known as “dollar cost averaging”. This means that the investor commits to investing a fixed amount of capital each month over the next 6 - 12 months.
What I really like about dollar cost averaging is that by committing to invest a fixed amount of capital on a pre-agreed date over time, it takes the emotion out of the investment process.
Dollar cost averaging is a very disciplined approach that usually leads to better outcomes on overall performance and gains for our clients at Bernstein.
Tom Miele — Wealth Advisor at Bernstein
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