You know those commercials about the most interesting man in the world?
Debonair. Impenetrably calm and collected.
The kind of man even Chuck Norris—and all his accompanying jokes—would curtsy toward.
A man who would most certainly always time the market exactly right.
Too many investors live under the illusion of emulating him.
But not only is he fictional—you probably aren't that kind of person either.
Everyone wants to be the investor who perfectly times the markets on the way up and on the way down.
Good luck with that, Gandalf.
Don't try to be a wizard or the most interesting man in the world.
Strive for ordinary consistency, not extraordinary timing.
Treat investing like discipline, not divination.
Trying to be the most interesting investor in the world is often a fool's errand. One way to avoid this trap is dollar cost averaging (DCA).
DCA is especially useful in retirement accounts that aren't tied to large lump sums. As our regulator puts it:
Dollar-cost averaging can help take the emotion out of investing. It compels you to continue investing the same (or roughly the same) amount regardless of the market’s fluctuations, potentially helping you avoid the temptation to time the market.
When you dollar-cost average, you buy more shares of an investment when the share price is low and fewer shares when the share price is high. This can result in paying a lower average price per share over time.1
Here's one purely illustrative version of how DCA works from Merrill Lynch2:
Stay consistent, my friends.
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Sources:
- “The Pros and Cons of Dollar-Cost Averaging” (May 24, 2022). Accessed online.
- “There’s Nothing Average About Dollar-Cost Averaging”. Accessed online.