The theme this week on the Retirement Quick Tips Podcast is: Nowhere to Hide. It’s been a rough year, with threats of a deepening recession and continued, sticky inflation dominating the minds of most investors. So this week, I’m talking about how you can navigate an economic and investing climate where it seems like there’s nowhere to hide. 

Today, I’m talking about how now is an ideal time to be using a dollar cost averaging strategy. 

If you’re investing in your retirement plan at work every paycheck, then you’re already using a dollar cost averaging strategy. 

Dollar cost averaging is simply adding cash to your investment portfolio over a period of time, rather than all at once. 

I’ve been doing this for clients over the last several years, mostly because of all the uncertainty regarding Covid and the choppiness in the markets since then. 

I had a client who recently sold a rental property. She decided that she didn’t want to reinvest it back into real estate so she added it to her investment portfolio. It was about $500,000 that we added to the portfolio earlier this year, and I was certainly not going to throw it all in the deep end of the pool. 

So we implemented a dollar cost averaging strategy. The timing and the amount can vary based on your comfort level. You can also use the current market and economic climate as a guide, but I wouldn’t get too caught up in trying to predict where we’re at there. 

But it’s helpful to know that a bear market (or a downturn of 20% or more in the stock market) when accompanied by a recession, typically lasts 20 months from the market peak to the market bottom. It can last longer or shorter than that, but let’s just use that as our guide. So we’re 9 months into this current bear market that started in January. 

If I were investing that money today, I would recommend that we dollar cost average over a period of 6-12 months. This likely gets us through the worst of the current downturn, and if historical averages hold true, we’ll be fully invested around the time this bear market ends. 

I could be off by a few months, but if the economic climate deteriorates from here and the stock market falls further, the dollar cost averaging strategy will pay off quite well. The worst case scenario is that we’ve already hit bottom but we don’t know it yet, in which case it would have been better to invest everything today to take advantage of the market bottom. 

But since I don’t have a crystal ball, I like the dollar cost averaging strategy a lot better. 

I think generally investing the same amount monthly like clockwork for 6-12 months is a good dollar cost averaging strategy when adding cash to your portfolio. I also like getting a healthy amount working now that things have already deteriorated so much in the stock market. Often, I’ll invest ¼ or ⅓ now and then we’ll dollar cost average the rest over that 6-12 months. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.

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