Making Volatility Work for You

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February 28, 2019
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Do you want to start investing but fear you will be buying in at the top of the market? Well, what if I told you there was a way to invest in which you could take emotion out of the equation altogether, not only banishing market anxiety but actually taking advantage of dreaded market volatility? Too good to be true? Far from it. The panacea exists, and it’s called dollar cost averaging or, as we call it in the finance world: DCA.

Dollar Cost Averaging is a pretty simple financial strategy: you purchase a set dollar amount (say $300) of securities (stocks, mutual funds, etfs, bonds…you get the idea) on the same day each month. Because you are committed to a set dollar investment the total number of shares purchased will vary from month to month based on the market. In months where prices are increasing you receive fewer shares; however, in months with falling prices your money buys MORE shares.

How does this benefit you? It removes emotion from the investment equation by keeping you from attempting to “time the market” (which has been proven to be impossible) and helps establish the saving behavior necessary for long term financial success. You are not waiting for a certain price to be reached before buying and when markets are experiencing volatility you are not selling and sitting on the sidelines waiting for things to settle down and then attempting to determine when to buy back into the market. Rather, you are using a disciplined strategy to steadily contribute to your long term goals and when the market is on sale, prices are declining, your monthly contribution has more buying power.

Here’s what’s even better: you are most likely already taking advantage of DCA as part of your financial plan, without even realizing it! If you are contributing to an employer sponsored retirement plan like a 401(k) (which you should be!), you are taking advantage of Dollar Cost Averaging by setting aside a certain percentage of your pay and investing it on set days each month. But why limit a DCA strategy to just one segment of your financial portfolio? You can leverage Dollar Cost Averaging to efficiently build individual accounts for shorter or medium term priorities such as travel, a new car, or purchasing a house. It’s not magic or rocket science, but Dollar Cost Averaging can help take advantage of volatility in markets, remove emotion from investing, and establish a beneficial pattern of saving for future priorities.

While dollar cost averaging is a powerful financial tool it is only one component of a full financial plan. If you would like to talk more about the impact of dollar cost averaging on your personal financial plan please contact me at zach.swaffer@trilogyfs.com.

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By
Jeff Motske, CFP®
April 17, 2019

Now, I’ve mentioned before that I’m not a fan of large tax refunds (see March 1 blog). In fact, if you are consistently getting a large tax refund, you should probably adjust your withholdings so you can dedicate that money to your financial why’s every paycheck. After all, allowing the IRS to hold your money is a bad investment. If you should find yourself receiving one, though, you may be wondering how best ways to use it. It’s only normal to be tempted to do some retail therapy or splurge on a fun experience. However, it’s best to see how you can get your money to work for you before giving in to that temptation.

The very first thing to consider is how much debt you have. Large amounts of debt, whether it be student loans, credit cards or other outstanding financial obligations, can cripple you from saving for your goals. Using your tax refund to pay down debt might be the very thing to get you closer to saving for your goals.

You also want to make sure to bulk up your emergency fund. An unplanned repair, medical expense or job termination can all cost a pretty penny. Without an emergency fund, we may feel tempted to use our credit cards to cover the unexpected expense. As I just mentioned earlier, this simply takes us farther from our goals. Ensuring that we have an adequate emergency fund can make sure that we stay on target regardless of what life may throw at us.

Your tax refund can also be used to work towards your financial independence. Maximize your contributions. If you don’t have a plan, establish one. A little money can go a long way with the help of time and compound interest. Remember: there is no do-over when it comes to saving for retirement, so be sure to do as much as you can now because that time will be here before you know it.

I understand that using your tax refund check to indulge in something today can be quite tempting. More often than not, though, these distractions simply take you off your path to financial independence. You need to make sure that you’re making the money you receive today work to build the life you want to live tomorrow.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

By
Jeff Motske, CFP®
April 17, 2019

“Don’t invest and forget.” This is a common sentiment that advisors try to communicate to their clients. We understand the importance of having a solid financial plan, but the plan doesn’t serve you if you set it and then don’t check in with it for years. A financial plan is a living and breathing document. As your life changes, so should your plan because those life changes can cause changes in your goals and your risks.

As you start your adult life, risks are generally low, and timeframes are typically long. You may be single, you may be renting. Should you hit some rough times, not that much may be rocked. This also applies to your investments. If there is a market shake-up, you have plenty of time to wait for the market to correct itself. Therefore, this is the time to be aggressive on your way to financial independence.

However, as your life changes, so does your risk. Perhaps you get married and start a family. Perhaps you buy a house or maybe you start a business. Suddenly, there is more at stake, there is more to lose. Additionally, while there is more at stake, there is less time. There is less time to save, less time to recoup any losses. These changes undoubtedly influence our decisions and our behavior in the market.

This change in risk isn’t done with the flip of a switch. Everyone’s life is different, hitting different life milestones at different times, starting to work towards financial independence at different places and having different goals to work towards. Therefore, computing risk, can be a gradual and complicated process. Working with a financial advisor can help you know when and how to change your risk so that you can steadily work towards the future and protect what you have today.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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