Enroll Cover

Be fearful when others are greedy, and greedy when others are fearful.

–Warren Buffett

During the market meltdown of 2008, some people decided to reduce or to stop contributing to their 401(k) accounts. Unfortunately, the decision to do so was not based on fact, but rather on fear. Acting on fear when investing your money can lead to making poor decisions for your retirement account.

How Dollar Cost Averaging Works Let’s look at Joe, our participant. Joe buys cows rather than buying mutual funds with the money he contributes. He works Monday through Friday and makes $10.00 contributions each day.

Time Horizon

Mon

Tues

Wed

Thurs

Fri

Total

Contribution

$10.00 $10.00

$10.00

$10.00 $10.00 $50.00

Share Price per Cow $10.00 $5.00

$2.50

$5.00 $10.00

-

# of Cows Purchased

Results: Just like a mutual fund, the price of cows changed every day. They were worth $10 on Monday and only $2.50 on Wednesday. By Friday, they were back to $10.00. However, the amount Joe contributed was unchanging at $10 each day. On Wednesday, when the cows were valued at $2.50, he bought four cows with his $10 rather than just one. We cannot control or predict what the price of our funds will be on the day you contribute, but the benefit of dollar cost averaging is when the mutual funds you are buying are down in price, you are actually buying more shares for your money.

The price of the cow never increased from $10. However, by Friday he still doubled his money!

Click here for more reasons why you should start early!