Dollar cost averaging - finance's free lunch
We all feel better about our investments when they are gaining in value. When they return more than their long-run average, we’re just borrowing returns from the future, yet we feel increasingly optimistic about what lies ahead (we’re nothing if not extraordinary followers of short-term trends). In reality, as savers, we should feel better when we get a chance to buy shares on sale. No one seriously thinks a diversified stock portfolio has reached a peak or that it will decline and never come back. So downturns are just buying opportunities. Want to see the wonders of dollar-cost-averaging in action? Consider the 15-year period from 2000-2014. Say you made a $1,000 contribution each month. The Vanguard S&P 500 fund earned a paltry +4.1% per year. Despite only saving $180,000 cumulatively, your total ending portfolio value was $352,202—twice as much as you saved—for a rate of return on your contributions of +8.5% per year! Read the article to find out how: (VIEW LINK)
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