putting your contributions on cruise control
Many investors worry about whether “it’s a good time” to be taking an investment trip, often resulting in sitting in the garage for months - if not, years - doing nothing.
By investing in your retirement plan out of each paycheck, you are automatically putting your contributions on auto-pilot, removing that fear of it being a bad time to invest.
And when you invest in the stock market out of each paycheck, you automatically buy more shares when the market is down, and fewer shares when the market is high - resulting in your average price per share being lower.
Let’s take a look at a hypothetical example below. These tables show three different investors that decide to invest $100 into three hypothetical stock funds each month for six months. The price per share starts out the same for each investor at $10, but you can see that prices start to fluctuate differently. Regardless if that price per share is up or down in value, each investor continues to contribute $100 every month.
Investor A’s share value went up every month, while investor C’s share value dropped to as low as $1 - down 90% from its original price!
Although investor C’s fund dropped in value the most during this 6-month journey, they actually ended up with the most shares and the highest ending account value! By continuing to contribute to the fund when it was down in value, investor C was essentially buying shares on sale. For example, in May when investor C’s share price was down to $1, they were purchasing 100 shares while the other investors were only getting around 5 and 12 shares for the same price! Once the value of those shares increased the next month, so did investor C’s account value due to dollar cost averaging.
Investment advisory services offered through intellicents investment solutions, inc., a federal covered investment adviser.