Being in the “right place, at the right time” has led to great opportunities in life for many. Some of these opportunities occur during a stock market downturn, which is a natural and expected event. Periods of decline present an opportunity to accumulate more shares of quality companies or funds. The key is to make sure you are in a position to take advantage of these opportunities when they present themselves.
Budgeting for investing and Dollar Cost Averaging (DCA) are two ways to stay the course during volatile times and optimize opportunities.
What is DCA?
With DCA, you invest a set amount of money at a set frequency, regardless of how the stock market is performing. For example, let us say you invest $50/month in mutual fund XYZ. When the stock market is down, your $50 investment goes further because you are able to accumulate more shares of XYZ. In DCA, your focus is on accumulating shares, and remaining disciplined with your chosen investment strategy and allocation.
What is Budgeting for Investing?
The second way to take advantage of buying opportunities is to budget an amount of money for investing and accumulate the cash in your investment account. During periods of a market downturn, when stocks and funds are “on-sale”, you will be in a position to take advantage of the market downturn with a one
-time purchase using the cash you accumulated.
Regardless of the method you choose (accumulating shares or accumulating cash), the goal is to plan ahead so that when an opportunity presents itself, you are in a position to take advantage of it.
Taking Advantage of Buying Opportunities
To help you recognize a buying opportunity, create a watchlist in your current brokerage account, or create one using Yahoo finance or Google finance. Your watchlist will get you in tune with the natural ebb and flow of the investments on your list and will help you recognize buying opportunities.
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