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.