Let’s talk about the investment strategy called Dollar Cost Averaging!
To remind clients to keep saving for their future selves, we try to make the investing process fun. Instead of solely announcing numbers at clients with multiple pages of legal paperwork, we remind clients to focus on what they can control with their investment accounts. To see how we do this, check out this sneak peek below of a Quarterly Email which we send to clients.
We mix up the themes each quarter, and also personally tailor recommendations for the client’s unique situations. My favorite part of these Quarterly Emails is that we attach a Paid Invoice so clients can understand how Well-Rounded Success gets paid and the amount of money which was taken out of their accounts for our services. As you can read in a previous blog post, the smoke-and-mirrors nature of the Personal Finance industry really grinds my gears, so we try to be as transparent as possible.
If you wish to explore a business relationship so you can receive this type of help, learn more at Well-Rounded Success’ Services.
Email Subject Line
3rd Quarter of 2017: Your Quarterly Email from Dan & Well-Rounded Success
Greetings <Insert Name>!
Please allow me to put on my ‘Financial Planner hat’ to discuss the below points as well as personalized recommendations for your investment account. Don’t forget to scroll down to the Tweaks For You section as well as your paid invoice.
You can’t control the markets so we encourage you to focus on what you can control with your investment portfolio. We created a process to address the below themes when we opened your investment account and we’ll discuss all these bullet points in future Quarterly Emails.
- Consistently invest (This Quarter’s Theme)
- Keep your money invested during fearful moments (2017 Second Quarter)
- Keep your costs low
- Be diversified
- Position your portfolio to your risk tolerance and time horizon
- Systemize your portfolio to sell high and buy low
- Efficiently trade for tax efficient opportunities
Let’s discuss Consistently Invest
Do you ask these questions just like some of our clients?
“Should I wait to get into the market?”
“Should I wait for the market to go down before I invest?
“Do you think I should invest my money on Monday or right now?”
Financial Advisors used to rely on crystal balls to decide when to invest but those stopped working in 2008 (joke credit to Mitch Anthony). Instead of acting like you know when the best time to invest, create a plan to invest. Then, here’s the trick: follow and stick to the plan.
Dollar-Cost Averaging is a technique to take the emotions out of investing by following a plan. Investopedia definition:
- Dollar-Cost Averaging (DCA) is an investment technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. The investor purchases more shares when prices are low and fewer shares when prices are high.
- The DCA technique does not guarantee that an investor won’t lose money on investments. Rather, it is meant to allow investment over time instead of investment as a lump sum.
[Side note, did you know that your Financial Planner’s initials are DCA too? In the below email signature, you can discover my middle name as a reward for getting through this quarterly email.]
Instead of putting so much pressure on when to invest, put a set dollar amount into your investment account on a set schedule. For example, contribute $250 into your IRA on the first of each month. By following this strategy you’ll find at the end of the year, you’ll contribute $3,000 through periodic contributions.
You can also look at the psychological benefits. Through DCA, you hedge yourself against “Buyer’s Remorse.” Imagine this scenario: you invest a large amount of money at a stock market high right before a significant drop in the market the next day. This scenario can cause you to psychologically dwell on what you should have done differently. By following the DCA strategy instead, your staggered contributions allow you to know you’ll make some investments at market highs and some investments at market lows.
Now, how do you take advantage of DCA? Leverage ways to make DCA contributions automatic so you can be lazy with your savings. This strategy is nice because you can gain the confidence that you’re being responsible without doing much. You do this by linking your checking account to your IRAs and then schedule recurring contributions throughout the year. You can decide if you want your transfer to happen in these examples. Whichever strategy makes you feel comfortable.
- On the first of the month
- On a specific numbered day of the month (for example: the 20th of every month)
- The day after your paycheck hits your checking account
- Multiple times a month
In your current investment strategy, whenever you contribute to your account, the full dollar amount of your transfer is invested throughout your diversified portfolio without any transaction costs. This strategy allows you to know you’re consistently investing versus just building cash reserves. Isn’t technology lovely?
This automatic investing strategy helps because many people feel they’ll have the wits and courage to invest their cash when the markets go down. However, when the markets go down, fear begins to spread which freezes a lot of people – especially when it comes to financial decisions. By automatically investing versus building cash, you combat this common investment paralysis.
As Thomas Rowe Price, Jr said about trying to time the markets:
“History and experience have proven that correctly predicting the timing and extent of stock market trends is impossible, because world developments and the psychological reactions of people are unpredictable.”
If you’re already committing to investing regularly, then here’s a friendly nudge to increase your dollar amount. If you’re not regularly investing, then please email me so we can determine how you can best start.
Some General Stats: As of the end of the third quarter (09/30/2017), the broad-based Morningstar US Market Index was up 4.52% for the third quarter and up for a total of 14.10% for 2017. The broad bond market (Barclays US Aggregate Bond) was flat 0.07% for the third quarter and increased a total of 1.53% for 2017. International Markets (MSCI ACWI Ex US NR USD) improved by 6.05% for the third quarter and is up for a total of 20.06% for 2017. For more numbers, check out this link: MorningStar Quarter-End Insights.
Please let me know if you want to check-in about your goals or to refresh anything with your portfolio. I’d be thrilled to chat. I nerd-out about this stuff and it’s an honor to help you.
Tweaks For You
When looking over your account, I identified some tweaks.
- [Personalized Recommendations]
- Equifax Data Breach Action Points
- In our latest monthly e-newsletter, we shared some actionable tasks for you to consider
To be as transparent as possible, attached to this email is a Paid Invoice breaking down the money that came out of your account for our Investment Management services. This is for your reference only and there is no need for any action.
Your Returns and Quarterly Account Statement
Update From Dan
My lovely fiancee and I are FINALLY nearing the end of our long-distance relationship. For over two years, she’s worked hard to become a Physician Assistant through the University of Nebraska Medical Center and she’s applying for career opportunities in Denver. We anticipate knowing what our lives might look like come December when she graduates.
As for me this last quarter, a fun adventure included taking a road trip with my dad where we pulled over to see the Solar Eclipse in Utah. He enjoyed his Dairy Queen ice cream with chocolate all over his face while looking up. Other highlights included a bachelor party for my future bro-in-law in Palm Desert, learning and speaking at XY Planning Network’s conference in Dallas, and giving back here in Denver by helping families during Financial Planning Days.
It’s a privilege to help you and please let me know if you have any questions!
Daniel Craig Andrews
Thanks for reading and if you want guidance on how to navigate your personal finances or you want help with your investment strategies so you can receive these personalized quarterly emails, please get in touch with me or learn more at Well-Rounded Success’ Services on the website.
About the Author
Dan Andrews is the Leader & CERTIFIED FINANCIAL PLANNER™ of Well-Rounded Success. Dan enjoys guiding and encouraging millennials through their ‘adulting’ responsibilities. His behavioral-finance style focuses on helping individuals in the Well-Rounded Success community define his/her own definition of success, make good decisions, and to also be philanthropic while along their journeys.
Cover Photo by Jarryd Wafer on Unsplash