investors like to worry and they should
risk is part of investing if you have
nothing to worry about
you should expect to have very low
returns markets have been on a steady
rise for quite some time now during
periods like this
investors will usually worry that the
market is too high fear of investing at
the top of the market might deter them
from investing at all instead choosing
to wait until markets drop the problem
with this thinking is that we are not
able to predict the future if markets
continue to rise from here you will have
left gains on the table and even if
markets do drop at some point how will
you know when to buy in successful
market timing is no easy feat and there
is no evidence that it can be
accomplished consistently Peter Lynch
one of the most successful investors in
history explained that far more money
has been lost by investors preparing for
Corrections or trying to anticipate
Corrections that has been lost in
Corrections themselves if you have a
pile of cash right now there are a few
things that you can do you can wait for
a correction you can dollar-cost average
over time or you can invest right now in
a lump sum I'm Ben Felix associate
portfolio manager at PWL Capital in this
episode of common sense investing I'm
going to tell you why right now is the
best time to invest
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tactical allocation funds are actively
managed funds that change their
allocations to different asset classes
over time based on what they think is
going to do well in other words they are
funds that specialize in market timing
as is the case with most actively
managed funds tactical funds tend to
underperform index funds market timing
is not something that you should expect
to lead to a successful outcome if
market timing won't work out well maybe
dollar cost averaging will produce a
better result dollar cost averaging is a
well-known strategy that consists of
investing fixed amounts over time for
example instead of investing two hundred
thousand dollars in a lump sum you might
choose to invest twenty thousand dollars
per month over the course of ten months
one of the reasons that dollar cost
averaging has a good reputation is that
you won't end up investing all of your
money right before a market crash as you
buy assets at regular intervals you will
be buying less shares and markets are
going up and more shares when markets
are going down sounds pretty good right
the problem with a dollar cost averaging
strategy is that it lowers your expected
returns this makes sense for the simple
reason that over the period of time that
your dollar cost averaging you're
holding cash cash reduces the expected
returns of your portfolio there's a bit
more to the downside of dollar cost
averaging than my simple explanation in
a 1979 paper titled a note on the sub
optimality of dollar cost averaging as
an investment policy George Costanza
nightís explained that dollar cost
averaging is suboptimal a 2012 white
paper published by Vanguard entitled
dollar cost averaging just means taking
risk later analyzed a comparison between
dollar cost averaging and lump sum
investing across the u.s. UK and
Australian stock markets they
consistently found that investing a
lump-sum outperformed dollar cost
averaging about two-thirds of the time
the evidence is clear dollar cost
averaging does not deliver optimal
results most of the time your best bet
is investing in a lump sum resulting in
better performance compared to dollar
cost averaging about two-thirds of the
time optimizing based on the evidence is
a great sounding idea but an investor
holding large amounts of cash would
often be uncomfortable dumping all of
their money into the
market at once they will fear the regret
of watching their newly invested
portfolio drop in value if you had
invested $200,000 in a globally
diversified portfolio in March of 2008
you would have been left with only 119
thousand dollars by February of 2009 as
bad as that may sound
that same $200,000 investment would be
worth three hundred and sixty four
thousand dollars if you had held it
until the end of July 2017 it's all
about how much risk you can emotionally
handle lump-sum investing is likely to
give you the best result but you need to
be able to emotionally handle potential
swings in your portfolio market timing
is not a good option if you have money
to invest you should either build out a
dollar cost averaging strategy or invest
a lump sum in a risk appropriate
portfolio right now statistically lump
sum investment will give you the highest
expected return as long as you can
handle the ride right now is the best
time to invest join me in my next video
where I will tell you why your financial
adviser doesn't like index funds my name
is Ben Felix of PWL capital and this is
common sense investing I'll be talking
about a lot more common sense investing
topics in this series so subscribe click
the bell for updates
I want these videos to help you make
smarter investment decisions so feel
free to send me any topics that you
would like me to cover
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