Getting your investment groove back

Getting back into the market during a period of uncertainty can be tough. Leveraging the power of regular investing and dollar-cost averaging (DCA) can help ease the process.

Going through a difficult and volatile period for markets where both equity and bond values have declined can be psychologically difficult as an investor. And, it is natural to find a sense of security by moving to the sidelines and into cash or short-term investments, such as GICs or money market funds. And, if that is appropriate given your investor profile and investment plan, that can make sense, especially as interest rates and bond yields have begun to offer a meaningful return for the first time in years.

However, if your goal is long-term growth in order to achieve a specific goal such as retirement, deviating from your investment plan simply to avoid short-term volatility can have a meaningfully negative impact on your ability to achieve your goals.

Find your groove – one step at a time

Most investors understand the historically predicated investment principle that it is not timing the market but time IN the market – that allows one to benefit from the long-term growth that a properly balanced portfolio can potentially achieve. But the actual process of getting back into the market can be difficult and seem overwhelming to an investor. One of the simplest yet most effective ways of easing back into the market is to establish or re-institute a regular investment plan. That way, you have a disciplined and consistent plan to regularly purchase smaller and manageable amounts, gradually rebuilding your portfolio over time.

Two groovy benefits:

1. Less freaking out

Regular investing works well because you can set up the plan and the funds are regularly withdrawn and invested into your portfolio. Investors tend to “set it and forget it”, which can allow them to benefit from nullifying or reducing their emotional responses to short-term market gyrations by removing the choice of whether to invest or not (although there is no lock-in period, and an investor can stop their regular investment plan at any time).

2. More growing your investments

This approach also benefits from the fact that, rather than trying to time one’s investment purchases, investors can engage in dollar-cost averaging, or DCA, allowing them to buy more units or shares of an investment when the price is lower, and fewer when it is higher. This takes market timing out of the equation, and especially in falling or flat markets, it can work better than “going all in” with a lump sum.

To illustrate, in the following scenario two investors are considering how to invest at the start of the last two years:

Each investor has $50,000 in cash to invest.
Investor # 1 prefers a DCA strategy and decides to deploy the cash across 12 equal monthly installments.
Investor # 2 prefers to deploy the entire sum of cash on the first day of the year.

Getting your investments groove back

Source: RBC GAM. Morningstar. S&P 500 TR USD. Rising Market: Jan 4, 2021 – Dec 31, 2021. Falling market: Jan 3, 2022 –Dec 30, 2022.

While a lump sum approach works better in a rising market, it can also be overwhelming and emotionally difficult for an investor to re-enter uncertain markets in this way – especially if they are worried about asset prices falling substantially. Regular investing and benefiting from DCA can ease this concern, allowing for a gradual and measured re-entry into the market.

We can help you set up the right “re-entry” plan – talk to us today about getting your investment groove back.

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