Reply #22: Dollar Cost Averaging

[smoogatz]

I know over the short term it can be frustrating, but there's almost no way your mutual funds haven't increased in value since '00, given the DJIA's almost 20% increase over that period. It's not as good as the 30% we had a month ago, but 20% return on your money over six years is still a very, very strong performance—one I'd take every time. If you're putting the same amount of money into your funds every month, the periods of volatility actually work in your favor: when the fund is down, you're buying more shares for the same amount of money; when it goes up again, your profits are therefore greater. This is kind of fundamental stuff. Volatility is scary, but as long as the trendline's going up (which it will as the economy expands), stock prices will, in general and over the long term, continue to rise.

That said, there are a lot of troubling and unpredictable externals in play right now in terms of oil supply, geopolitical crises, looming fiscal/banking crises, climate crises, etc., any or all of which could easily trigger a sudden and catastrophic global market crash. We've had most of our money parked in (relatively) safe bonds and cash for several years now; I'm thinking about buying gold, although I'm somewhat late to the game, and storing gold coins is a pain in the ass.

On edit: Bush's policies do spell long term trouble for the markets, obviously: the U.S. is in a much weaker debt/currency position than it was six years ago, and a big recession is now almost inevitable as a result. Watch out for rising interest rates, too, as U.S. debt becomes less and less attractive to foreign buyers.