Do you feel comfortable investing today in the stock market?  Many people are apprehensive about putting money in the market right now.  Some of the reasons are:

The market seems very high.  When the market is high, you hear sometimes days in a row that new records are being set.  Well once a new high has been reached, the indexes can go up only one point which is really nothing, yet the news media excitedly reports that a new record high has been reached.

I have been in the financial planning business for 44 years.  For the most part, my clients who I have done the best over the long term are the ones who stayed in the market.  But that can be hard to do especially if you are over 55 years old.

One of the ways you can mitigate the risk of putting new money in the market is to use the old dollar-cost averaging method.  An example of dollar-cost averaging is as follows:

In this example, you deposited $10 per month for 3 months.  The first month the price per share is $10.  So you bought one share.  The next month the price per share fell to $5 but you still deposited your $10 so you bought 2 shares.  The third month the problem corrected itself and the price per share went back to $10 so again you bought one share.  After three months you have deposited 30 but you have 4 shares worth 10 each.  How did you make money?  You bought some shares when the price per share was down.

Even if you are not adding new money, you can always take the money you have built up and move it to a money market account and start dollar-cost averaging back into the market.

For people that this dollar-cost averaging idea still sounds somewhat scary too, there are also types of annuity products available today that allow you to capture all or most of what the stock market gives and still have significant downside protection.  These types of annuities that offer buffers and floors to help reduce or eliminate losses are especially useful for people for example over 55 years old or for younger people who are simply more risk-averse. For more details on these concepts, please feel free to refer to the article my son wrote last month.

Going into detail about how either of these concepts works or if they are applicable to your situation is beyond the scope of this article.   Speaking with a knowledgeable and experienced financial planner who is aware of the risks we face today may be helpful.

Craig M. McDaniel, CFP

This commentary is a general communication and is provided for informational and/or educational purposes only. None of the content should be viewed as a suggestion that you take or refrain from taking any action nor as a recommendation for any specific investment product, strategy, or other such purpose.  In the event that there has been a change in an individual’s investment objective or financial situation, he/she is encouraged to consult with his/her investment professional.

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