Stock Market: Time To Go All In
Others are fearful right now, and they will be at least until the season finale of Fiscal Cliff. So I'm taking this as an opportunity to set up an automated investing plan that increases my exposure to a wide range of investments, stocks and bonds, over the course of the next few months. There are two possible outcomes, and when I take a moment to analyze this, I find out that I'd have been wrong in both situations.
The first is that the market increases over the next few months. I took the wrong action because rather than investing a lump sum today, I spread it out over time, getting worse deals for my money along the way. The second is that the market doesn't increase over the next few months, in which I would have done better by not investing until the end of the period if at all. Without knowledge of the future, I can reduce my pricing risk by dollar-cost averaging my investment.
This may be the wrong reason to dollar-cost average, but it feels less riskier than putting a lump sum into the stock market right now, at a time when I expect drama and volatility to increase approaching the end of the year. And as December 31 approaches, it might become clearer whether tax rates on long-term investments will increase. If they do, people who believe their investments are good due only to the favorable tax rates will sell, creating more opportunities for people who believe the investments are good regardless of tax rates to find fair-priced purchases.
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