Friday, September 2, 2011
Topsy Turvy Markets mean Opportunity
But you have to be a disciplined investor to benefit....
The turmoil of the markets of early August were gut wrenching but not entirely unpredictable. After all market volatility is a fact of life in today's rapid fire electronic marketplace where the economic hiccups in one part of the world can become headaches in markets globally. If you have no need to liquidate or withdraw from your investments during a particularly topsy turvy market, the conventional wisdom is to simply wait out the storm. But if you have already set up an automatic investment purchasing program, such as through a direct debit from your chequing account to purchase mutual funds or a Group Registered Retirement Savings Plan (RRSP), you are well positioned to benefit from any market downturns through the magic of dollar-cost averaging.
Dollar-cost averaging simply means that over time, while you may pay more for an investment purchase one month, chances are you will pay less during another month, given the ups and downs of market volatility. Since most of us have neither the ability nor the nerves to sit in front of a trading screen all day to decide when to "buy low", the setting up of an automatic investment purchasing program, essentially a forced savings plan, ensures that pre-selected risk appropriate investment units or shares will bought on a pre-selected date at that day's market price without any further instruction from the client.
It is important to monitor your automatic purchases at least once a year to see if the investment selection still fits your risk profile and needs. If your finances are tight, you can opt out of most of these plans with due notice. But for those procrastinators (and we are numerous) who find making investment decisions painful, being in an automatic investment purchase program ensures that our savings will be invested come hell or high water- and with the way things are going, that is one less thing to worry about!
The turmoil of the markets of early August were gut wrenching but not entirely unpredictable. After all market volatility is a fact of life in today's rapid fire electronic marketplace where the economic hiccups in one part of the world can become headaches in markets globally. If you have no need to liquidate or withdraw from your investments during a particularly topsy turvy market, the conventional wisdom is to simply wait out the storm. But if you have already set up an automatic investment purchasing program, such as through a direct debit from your chequing account to purchase mutual funds or a Group Registered Retirement Savings Plan (RRSP), you are well positioned to benefit from any market downturns through the magic of dollar-cost averaging.
Dollar-cost averaging simply means that over time, while you may pay more for an investment purchase one month, chances are you will pay less during another month, given the ups and downs of market volatility. Since most of us have neither the ability nor the nerves to sit in front of a trading screen all day to decide when to "buy low", the setting up of an automatic investment purchasing program, essentially a forced savings plan, ensures that pre-selected risk appropriate investment units or shares will bought on a pre-selected date at that day's market price without any further instruction from the client.
It is important to monitor your automatic purchases at least once a year to see if the investment selection still fits your risk profile and needs. If your finances are tight, you can opt out of most of these plans with due notice. But for those procrastinators (and we are numerous) who find making investment decisions painful, being in an automatic investment purchase program ensures that our savings will be invested come hell or high water- and with the way things are going, that is one less thing to worry about!
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