Why dollar-cost averaging may pay off amid stock market volatility

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Investors are preparing for 2023 amid stock market turmoil, rising interest rates and geopolitical risks – with many bringing fears of a recession into the new year.

But despite the economic uncertainty, financial experts point to the right time, encouraging investors to put money in the market, rather than leaving it on the sidelines.

Agreeing with many in the consulting community, Betterment CEO Sarah Levy said she expects a “tumultuous and turbulent first half of 2023,” but her long-term outlook is optimistic.

“Over the five- to 10-year horizon, it’s a great opportunity for this dollar-denominated opportunity,” he said, speaking at CNBC’s Financial Advisor Conference on Tuesday.

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The strategy behind dollar cost averaging is to position your money by investing for a specific period of time, regardless of what is happening in the market.

While research shows that investing quickly can provide higher returns, some experts say that dollar averaging can help prevent risky investment decisions. emotions.

After a double-digit loss in 2022 for the stock and bond markets, it’s easy to see why some might be hesitant to continue investing. But experts say that the fear of loss can be expensive, and you may not see the best recovery day in the market.

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The 10 best days of the past 20 years occurred after a major recession during the 2008 financial crisis or a recession in 2020, according to a study by JP Morgan.

“Take control of what you can control,” Levy said, noting that automated, recurring investments can help “take the emotion out of equities,” when the market is down, he said.

There are opportunities to make money when interest rates rise

Currently, consumers have more than $ 1.5 trillion in savings due to the Covid pandemic, but spend 10% more than in 2021, and “the cost of living is making everything worse”, said JPMorgan Chase CEO Jamie Dimon on Tuesday on CNBC’s “Squawk Box.”

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However, higher interest rates have made savings accounts more expensive, Levy said. Investors could benefit if they put money in “the right institutions” where higher yields are passed on to clients, he said.

“Money in a savings account is accessible capital,” Levy said. “There’s really no benefit to locking up money in any kind of permanence.”

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