Dollar-Cost Averaging: A Way to Navigate Bear Markets and Volatility

Wednesday, 07 December 2022
Written by MYTHEO

There’s no doubt that bear markets can be scary and we understand that starting or continuing your investment journey can be a tough decision during volatile times.

However, a long-term mentality, starting small and being consistent, can be very powerful behaviours to build wealth over the long-run.

Instead of investing a large sum at one go, investing a small, regular amount each month will help you spread out the risk from market volatility over time. This is typically known as “diversification over time” or dollar-cost averaging.

The chart below illustrates the difference between investing $100 a month into the S&P 500* (shown by the blue line) versus the cumulative amount of capital invested (shown by the black bars).

After just over 20 years, $25,000 in capital has been invested, but the market value stands at around $80,386. That’s a return of RM55,386, 3.2 times the capital invested!

As the illustration shows, the act of steady dollar-cost averaging can be a powerful wealth builder over the long-term, even when taking into consideration market crashes such as the Global Financial Crisis in 2008, the Pandemic market crash in early 2020, and this year’s bear market.

In this way, by spreading your investments out over time, you can greatly reduce the risk of investing when prices are high while also being able to average down the purchase price during market crashes.

As MYTHEO’s Chief Investment Officer Matthew Stuart-Box noted in one of our webinars, Dollar-Cost Averaging is a very powerful behavioural tool.

It can build the essential habit of investing for the long-term by helping take the emotion out of investing through automatic and consistent deposits, no matter the market condition.

So, by automatically investing a certain amount of money on a fixed date every month, you can take action automatically without being influenced by any emotions caused by rising or falling prices.

MYTHEO uses technology and algorithms to simplify, automate, and lower the cost of investing, while helping you achieve smarter global diversification with a highly personalized portfolio.

*Data is based on the SPDR S&P 500 trust ETF from 1/1/2002 up to 1/10/2022 obtained from Yahoo Finance.

Past performance is not a guarantee of future returns.

The above content and communication is for educational and informational purposes only.

This communication is also subject to terms available at the following link:

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