The Wealth Wisdom: Patience Pays in Equities

Dollar averaging is a strategy that manages price risk when investing in stocks and mutual funds. The benefits are:

Regular investing - Instead of buying at a single price point, dollar averaging involves purchasing smaller amounts at regular intervals.

Lower average cost - By spreading out your purchases, you can potentially buy more when prices retreat.

Emotion free investing - Dollar averaging removes the emotional aspect of market timing.

Source: Bloomberg  (Real returns)

Long term investing

Over a number of 20 year periods, history demonstrates that over the long term, it is very dangerous to be out of the market. The chart below shows the range of returns for different asset classes in the US since 1925. Yes we don’t disagree that over short periods, equity investment can inflict serious losses but over the longer term, time is your friend. Over no 20-year period since 1925 (which includes the Great Depression and numerous global financial crisis), have equity investment failed to beat inflation, which cannot be said for any other asset classes.

Hence history is absolutely clear: it is very dangerous to get out of equities altogether.

In Avian Capital, we firmly believe in the concept of dollar averaging and long term equity investment.