You don’t have to constantly watch the financial news to invest successfully in the market.
You may have seen that gold and silver prices have risen for the last 18 months and recently fallen off a cliff. Many people in my area of finance and investing would have been wondering how they can take advantage of the falling gold price, whether that’s by trading or investing, but many people I deal with on a day-to-day basis are either professional investors or locked in to the markets, meaning they can take advantage of those opportunities when they arise. So how can you take advantage of market movements if you are on board with long, busy workdays?
Chances are, you can’t, but I’ll caveat this by saying 99 percent of people can’t. I can say that with confidence because most people don’t know enough about the subject matter, and don’t have the discretionary money available to take advantage of certain market opportunities when they arise.
Plus, when people try to time the market, by buying low and selling high, most tend to fail. As the famous adage says, the key is time in the market, not timing the market.
So, here is a strategy that may work best for you if you can’t keep an eye on the market. It is called dollar-cost averaging. This is where you invest a set amount of money every month or every paycheck into whatever investment you’re buying. It works because you maintain the amount of money you invest, regardless of whether the market is high or low.
For example, let’s say one month you decide to invest $100 into a stock that is worth $66. That $100 buys you around 1.5 shares in that company. But they have a great month, and now, the stock price is $200. Your same $100 only buys you 0.5 of a share. Across the two months, you’ve bought two shares, regardless of what the share price did.
This works by removing the timing risk. J.P. Morgan Asset Management provided data over 20 years. If you stayed invested for the 20 years, you would receive a return of 10.5 percent annually. If you missed the 10 best days of trading (over 20 years!), your returns would drop to 6.2 percent. If you missed the best 30 days, your returns drop to 1.4 percent. That’s what can happen if you try to time the market and miss.
Many long-term investors, such as Warren Buffett and Benjamin Graham, have consistently advocated for dollar-cost averaging as it is a foolproof method in ensuring that you stay invested for the long-term and don’t get distracted by the outside noise. It is an ideal method for people who can’t keep the financial market news on their laptop 24 hours a day, and therefore, it may be the right choice for you if you’re busy during the season or on back-to-back charters.