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Ask Dave

Dollar-Cost Averaging?

Dave says you have to be emotionally prepared to watch your money rise and fall if you invest a large chunk in a mutual fund.

QUESTION: A listener asks what Dave thinks about dollar-cost averaging as a way of investing in the stock market, especially if he has a big chunk of money to invest.

ANSWER: Dollar-cost averaging will make you emotionally capable of investing even if the stock market drops.  If you put money into mutual funds in a lump sum, you may freak out if the market dips. 

The history of the market shows that putting in a lump sum is better, but many investors aren’t emotionally able to watch their money go through the drastic ups and downs.