Market downturns provide us with a unique opportunity to invest at discounted stock prices and you might have experienced them a number of times already, like last spring or during the Great Recession of 2007-2009. In spite of the fact that we know it’s going to be happening over and over again, for some reason we often seem to be totally unprepared when it already takes place, or at least we fail to take full advantage of these opportunities. Why? Simply because you never know whether the bottom was already reached – and waiting for the stock market to rebounce, we finally realize it is 10-20% up already. Generally speaking, this is pretty normal and unless you are an extremly talented and/or disciplined stock analyst, your chances to time the market are quite low (see this article for more details). The same applies to the reverse scenario: the stocks are up (like the FAANG today) and it’s hard to determine whether one should keep them, hoping for higher gains, or maybe it’s already the right time to sell them, before the possibly massive selloff starts. So what can we do about this? Probably the easiest solution is to apply a popular investment strategy dubbed dollar-cost averaging (DCA) or constant dollar plan. Basically, the idea is to divide up the total amount to be invested into purchases done in regular intervals. For instance, having $10,000 to invest in AAPL, one could either try to time the market, executing a single purchase at the best possible price (this is the so called lump sum investing) or split it into smaller (let’s say $500) purchases executed monthly (DCA), which reduces the impact of price volatility on the overall performance of one’s portfolio and, generally speaking, often helps gaining higher yields. Continue reading “Modifying the dollar-cost averaging strategy for higher yields, part 1”