Those out there that consider themselves ‘traders’ can move along as you will not agree with this post at all. Those that have the time to watch the market most of the day and spring on buys and sells as soon as the stock reaches your price. This is for those of us that really have other things to do or just dont want to deal with the work (or stress) with timing the market.
Yes when you try timing your market purchases you often end up just losing one way or another. The biggest way is that your money is just sitting on the sidelines instead of having that extra time in the game. With my Vanguard I dont have that problem, it is all on auto pilot (I do check in once in a while). Every Monday $80 goes in rain or shine. It buys shares of my funds no matter if the fund is up that day or if its down. Over time with these purchases it will average out and smooth those highs and lows and my money will be working instead of sitting in my pocket.
This is dollar cost averaging and along with a buy and hold strategy the best way to be investing. Best way to do this is like I do above and put your money on a auto schedule and just put it in regardless off what the market is doing.
Now I have deviated from this a bit in my buyandhold.com account. Here I have my dividend portfolio where I like to play a bit more off auto pilot. I have mentioned that I make purchases each month based on ex-dividend dates and who is paying a dividend next month. For instance Next month (April) SRE and GE are paying their dividends so I have to purchase more of these before end of March (roughly) for those new purchases to be able to pay a dividend in April. Typically sometime during the first few weeks of the month I will see a down day and buy then, like I did with SRE this month. With GE I decided to actually wait for a ballpark price, under $20, before I made my purchase. Now I dont stare at the screen waiting for that moment, I just check once in awhile and thats where I made a mistake for me.
As mentioned in my review of BuyandHold.com I mentioned that for the monthly fee you get 2 free trades. I make a point to use those trades each month otherwise I am just throwing money away, something I dont like doing. This is where I lost out as my renewal date for Buy and Hold appears to be on the 20th and in my wait for the sub $20 GE I forgot this and missed out on the second free trade for this month.
So I have made a decision that regardless of price I will be making my 2 trades a month by the 15th regardless of price, just get the money in there. If you are a fellow buy and holder this is the best way, dollar cost averaging and dont worry about the day to day price of the stocks you are buying. Get your money in to the market so it has more time to work for you.
Your milage may vary…