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How to Make “Now” the Perfect Time to Invest
Søren Otto Simonsen
Senior Investment Editor
Investing your savings is smart, but before you can call yourself an investor, you need to take a few steps. First, figure out what to invest in. If you’re unsure, look into mutual funds and bonds for inspiration.
After deciding your investment strategy, many wonder if “now” the right time is to start. Many people delay investing, waiting for the perfect moment or fearing market downturns. Unfortunately, you can always find reasons why it might not be a good time to invest.
Thankfully, there’s a strategy to help you overcome this hurdle: dollar-cost averaging. This popular approach helps investors navigate market fluctuations, and it’s not limited to dollar investments despite its name.
Dollar-cost averaging is a straightforward strategy that ensures you invest at an average price over a specific period. Instead of investing all your money at once, you invest smaller portions at regular intervals (e.g., daily, weekly, or monthly). This way, you buy at various prices, averaging out over time.
The Power of Averages
Let’s look at a simplified example. Suppose you have EUR 24,000 to invest in a particular product. Instead of investing it all at once, you spread it out over a year, investing EUR 2,000 per month. Over the year, the share prices you want to buy fluctuate as follows:
Month | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 |
Share Price | 4.00 | 5.00 | 2.00 | 6.00 | 4.00 | 5.00 | 2.00 | 6.00 | 4.00 | 5.00 | 2.00 | 6.00 |
Shares Bought | 500 | 400 | 1,000 | 333 | 500 | 400 | 1,000 | 333 | 500 | 400 | 1,000 | 333 |
By investing EUR 2,000 each month regardless of the price, you end up buying a total of 6,700 shares at an average price of EUR 3.6 per share. This simple example shows how dollar-cost averaging smooths out your market entry.
Dollar-Cost Averaging: Good for Your Money, Good for Your Peace of Mind
Investing this way offers several benefits. The most obvious is achieving an average price over time, which reduces the impact of short-term volatility. This can help you sleep better at night, lower your investment-related stress, and minimize emotional decision-making.
Moreover, dollar-cost averaging fosters a disciplined and structured investment approach, removing much of the emotional component, which is often detrimental to investment success.
While it’s possible to get lucky and invest all your money at the perfect time, the opposite can also happen. To avoid making market timing a major factor in your investment success or failure, dollar-cost averaging is a practical and popular method. It eliminates one of the biggest barriers to investing: deciding whether “now” is the right time. Instead, it encourages you to get started because, as the saying goes, “time in the market beats timing the market.”
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