A Steady Strategy in Turbulent Times
After an unusually calm year in 2017, the stock market turned unusually volatile in 2018.
How volatile was it? Consider this: In 2017, the S&P 500 had only eight days when the index closed with a rise or fall of 1% or more from the previous day’s closing price. In 2018, there were 64 such days, including 14 days with a change of more than 2%, four days with more than 3%, and two days with more than 4%.
Unfortunately for investors, the overall market trend was downward in 2018, but the most volatile trading days included big gains as well as big losses. So an investor who sold securities after a big drop could have ended up locking in losses and missing the next big upswing. On the other hand, an investor who bought securities after a big upswing might have watched in dismay as values plunged a few days later.
The maxim that it’s impossible to time the market is true under all market conditions, but it can be especially damaging — and nerve-racking — to try to anticipate market movements during a period of dramatic ups and downs. One approach that might help steady your blood pressure and build your portfolio over time is dollar-cost averaging.
Dollar-cost averaging involves investing a fixed amount on a regular basis, regardless of share prices and market conditions. Theoretically, when the share price falls, you would purchase more shares for the same fixed investment. This may provide a greater opportunity to benefit when…
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 21 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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