Dollar Cost Averaging | The Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: No Surprises

The economy and financial markets are full of surprises.  For example, everyone was bearish at the beginning of the year, expecting a recession and further weakness in the stock market.

More recently, however, market volatility has plummeted and everything seems to be going according to plan – we seem to be in a “Goldilocks” environment at the moment – everything is just right.

Earnings reports have been meeting or beating expectations and the Federal Reserve didn’t provide any surprises this past week with another quarter-point interest rate hike – right in-line with expectations.

After a long enough period of no surprises, investors start to become complacent and forget about the risks inherent in markets.  We might be getting close to the point where the market is vulnerable if anything unexpected comes along to change the status quo.

Featured Insight: Dollar Cost Averaging

Now that the stock market has delivered an impressive return already in 2023, even though it still has a ways to go before reclaiming its all-time high in early 2022, some investors are worried they may have missed out if they’ve been sitting in cash while the market has been on the rise.

One strategy for getting money invested in stocks while reducing the risk of a downturn in equity prices is to dollar cost average your money over a period of time.

Let’s say you have $50,000 to invest.  Instead of investing it all at once, you could invest $10,000 a month for the next five months, or $5,000 a month for the next 10 months.

That way, if the market continues higher, you would be participating in future gains along the way, but if the market moves lower, you’ll have an opportunity to buy more shares with the same amount of money at lower prices.

Looking Ahead: Apple to Report Earnings

Apple is arguably the most successful company of all time.  At more than $3 trillion in market value, it is certainly the most highly valued company that has ever existed.  I’m not sure that’s true on an inflation-adjusted basis, but it very well might be.

This has obviously helped their total returns given that Apple is up more than 100% in the past 3 years, 300% in the past 5 years, and more than 1,000% in the past 10 years.

I always caution investors not to keep too many eggs in one basket; even if it’s a basket that’s as seemingly secure as that of Apple’s.  The future is always uncertain, and there are plenty of examples of companies that reached the pinnacle of American business before watching their businesses and/or stock prices fall from grace.

With that being said, Apple is reporting earnings next week, and should likely continue to impress investors with its financial performance.  Nevertheless, expectations are high when you’re king of the hill, and any disappointments will likely be met with substantial downside in the near term.

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