Taking advantage of market volatility with dollar-cost averaging

Want a strategic approach to investing while avoiding emotional reactions to the market’s inevitable ups and downs? Looking for a way to potentially benefit from market fluctuations?

If you sit on the sidelines during periods of market volatility or try to time your investments to catch market upswings, you may miss market growth opportunities. If that’s the case, you may wish to consider this strategy.

Dollar-cost averaging is a core investment principle and one of the simplest, most effective ways to bring discipline to your investment plan. By making regular investments in the market, you don’t need to think about timing your investment.

Investing gradually can help reduce risk by averaging out your unit price and ensures you’re invested so you can participate when markets rally. For long-term investors, this strategy removes much of the emotion from investing and lets market volatility work for you.

There are a couple of ways to implement a dollar-cost averaging strategy, depending on your situation.

One way is to use a dollar-cost averaging service offered by an investment company. It allows you to invest a larger lump sum amount in a money market or short-term fixed income fund and automatically transfer it to longer-term funds according to your risk tolerance over a predetermined period of time.

Another alternative is to set up a pre-authorized chequing plan to automatically withdraw smaller amounts of money from your chequing account on a regular basis, to be invested in your portfolio.

Both methods allow you to invest in the market gradually and take a strategic approach to investing in all market conditions. As your financial security advisor, I urge you to contact me today to determine how a dollar-cost averaging strategy fits into your financial security plan.

Planning to protect your investments from too much risk

Lengthy estate settlement, risk that creditors will have access to your investments and risk that down markets will erode your investment values are just some of the potential risks from which you can plan to protect yourself.

However, if you’re among a growing number of aging Canadians who want to collect an income in retirement there are other risks you will face. If your focus has been retirement savings, you may not be aware of these unique risks associated with the income phase of your retirement plan.

The retirement risk zone

Unpredictable investment returns is one such risk. Poor market returns in the years just before or just after retirement may leave you with insufficient income to last your lifetime. Industry experts consider the five years before and the five years after retirement to be an especially critical phase for retirement savings.

If you are fortunate during retirement and earn excellent returns, your retirement savings may continue to grow even while you are taking an income.

But if you are unfortunate during retirement and earn poor returns, your retirement savings may run out leaving you with little to no income.

It’s important to have a plan to reduce the risk your retirement income will not be sustainable.

Protect yourself

There are several things you can do to help combat the risks associated with investing through both the saving and income phases of your financial security plan. Here are some things you should consider.

• Choosing the right product mix – While retirement and other risks cannot be addressed with just one product, there are several features segregated fund policies offer that can help protect you from the potential risks associated with retirement. As your financial security advisor, I can help you determine whether insurance-based investment vehicles such as segregated fund policies are appropriate for you.
• Building the right portfolio – Take advantage of the many tools I have that will help you determine the right mix of investments you should hold in your investment portfolio. I will help make sure these decisions are based on your unique situation and your risk tolerance – so you can feel more comfortable with the level of investment risk associated with investing.
• Contacting me regularly – It’s important to remember your feelings towards risk may change over time, so maintaining contact with me is important. As your financial security advisor, I can give you the advice you need about how to best approach these potential risks as they may apply to you.

Whether you’re in the saving phase of your retirement plan or drawing an income, I will work with you to help determine what products and features are best suited to helping you reach your investment goals.

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of the writer’s knowledge as of the date submitted for publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.