I Dollar Cost Average into My Investments a Bit Different
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Due to the nature of my finances and company contributions to my savings plan and pensions I do not dollar cost average into my dividend stocks. My wife and I are fortunate enough that she is able to stay home to look after the kids while I am at work. This has meant some sacrifices, and one of which is that I do not put in any additional money from my paycheck into any investment assets. Our ’saving’ grace so to speak is that I work for a company that has a very good pension and savings plan that provides me with a high level of additional money to invest with. I have provided descriptions of these accounts in previous posts. To buy my dividend stocks I have had to be strategic about this company provided money. Here is how it works.
First off, I do dollar cost average (for a definition of DCA – see The Digerati Life) into the pension funds available through my pension fund. Each month I contribute 2% of my earnings and the company gives me 4% and these go into specific pension funds of my choice. I choose between a Canadian equity, U.S. Equity, International Equity, and/or, Bond fund. The amount I allocate to these funds depends solely on my asset allocation requirements. For example, right now I am light in my fixed income and international equity allocation so my contributions are directed to these respective funds. Once my asset allocation is correct, I will alter where my contributions are placed. Therefore, I am doing a modified dollar cost averaging strategy as the money is automatically invested every month, however it is not totally passive as I alter where the money is invested.
I also dollar cost average into our company stock, however it is this money where I typically get the funds to purchase my dividend investments. Each month I contribute money to buy company stock and receive a match for doing that. As one of The Dividend Guy Code I live by is to try to ensure that no one stock make up more than 10% of any one holding, I often need to sell this company stock from time to time which provides me with cash for other assets, such as dividend stocks. Therefore, I do dollar cost average into this company stock but also sell it. With this money, I do not dollar cost average but rather I invest it in a lump sum into dividend stocks or other assets as dictated by my asset allocation. Investing this in a lump sum is the preferred method based on research so I choose to do it this way.
In summary, just because of the nature of my situation, I do dollar cost average but have had to make some modifications to ensure that my asset allocation is in line and to allow me to purchase dividend growth stocks. What things have you had to do to get the benefits of dollar cost averaging?
(Photo Credit: mokra)
4 Comments on this post
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Mickey said:
Nice piece. I think dollar cost investing works well provided the investor who is profiled understands the possible different outcomes that can result from market direction & frequency used compared to lump sum investing. Volatility of the investment instrument used is also a highly contributing factor on the returns derived from this strategy. With a basic understanding of markets, investor should consider actively shifting between lump sum investing & dollar cost averaging throughout their investing horizon.
Mickey
My Informative Article:
Does Dollar Cost Averaging Work?September 29th, 2009 at 9:27 pm -
W.Gadoury said:
Concerning dollar cost averging, I’ve been using a technique – as an individual investor – that I’ve seen reference to, but apparently doesn’t have wide following. Its basicall modified DCA. I started by plotting hi and low averages of the S&P, experimented with various middle-buffers (between the hi and low averages) and only bought above the hi-average line, and only sold below the low-average line. Trades were mostly mutual funds, long term only to avoid short term tax consequences, or retirement funds where there were no short-term consequences. I’ve been doing this for 30+ years and have have had net positive results. Haven’t had time to do the math, but looking back the results have been good.
I don’t have time or inclination to do the math, other than insuring the sales profit on a purchase is in the above-average zone. These days I’ve shed the hi/low average lines and just keep watch on the S&P moving averages. The one I focus on (200, 100, 50, 20 day moving averages) depends on the prevailing volatility. My goal is to have a trade a week, when the S&P is sufficiently higher or lower that the appropriate length moving average. Its quick, easy and gets results. I should note, however, that this strategy did not save me from the 2007/2008 sell off, but the end result was “less worse” than I would have had experienced otherwise. Maintaining long term focus during this difficult period has been the “main thing.” (Remember, the main thing is to keep the main thing the main thing!). Also, decreases in share value is not a loss, only a squeezing of value. Like a sponge that gets squeezed then bounces back to normal shape when “unsqueezed.”
Cheers. wrgNovember 27th, 2009 at 11:10 pm
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