A simple, passive investment strategy is certainly good enough to do incredibly well in the investing world over the long haul. For those who’ve committed to indexing, all it takes is setting aside a portion of one’s paycheck to put in the incredibly popular Vanguard Total Stock Market Index ETF (NYSEARCA:VTI) or Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) at the end of the month.
Also, dollar cost averaging (DCA), which entails putting new money to work gradually over time, can take the emotions out of the equation. When the stock market tanks as it did back in April, you’ll still buy in accordance with your DCA strategy. The more one can automate this process, the better.
Of course, with Donald Trump’s tariffs still fresh on the minds of many investors and the concern growing over what Trump referred to as a “big beautiful bill,” that would raise the U.S. national debt by a concerning amount (think trillions), investors may be wondering if it’s time to pull back on the DCA and hit the pause button for a while or double down and start “backing up the truck” while stocks take a bit of a hit.
Key Points
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Buying more stocks on the way down can be a wise move to score lower cost bases on positions.
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The SCHD and VTI are stellar ETFs to buy (more of) whenever the market gets upset.
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It’s impossible to time the market bottom. Instead, one should incorporate a more systematic approach.
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Is it time to hit the double down or hit the “pause” button on new investments in light of new risks?
In any case, I think “staying the course” is the best move for someone who’s previously committed to DCA. Sure, it gets harder to stick with it when the market waters get more turbulent, but it’s far better to embrace the choppiness and invest as usual than to let emotions influence investment timing.
At the end of the day, markets can keep on rising, even when the list of risks grows. Though trimming here and there may be prudent if there are a few overheated names that have gotten a tad too expensive, pulling the plug on an otherwise sound, passive investment plan, I believe, may not be the best way to go.
In a recent Reddit post on the r/dividends subreddit, a user expressed concern for the turbulence experienced back in April. They were wondering if there was a level to “back up the truck” or if the steep sell-off on the back of tariffs was warranted or preceding a more painful move lower.
When to load up? Forget timing the market! Buying incrementally on the way down and sticking with DCA seems wise.
As always, hindsight is 20/20. If our Reddit user loaded up in the heat of the Liberation Day panic, they would have enjoyed a very swift double-digit gain. If they hesitated, even for a moment, they may have missed most of the easy gains on the ride back up. This goes to show that it’s tough to time the market, whether one is aiming to scoop up or offload a stake as part of their investment strategy.
Though I’m not against sticking with the DCA strategy, regardless of the market’s reaction, I think it makes sense to do some additional buying after every X percentage the market falls. So, if the market corrects, one may wish to deploy an additional amount of cash with the intent of putting even more to work if that 10% correction turns into a 15% drop or even a bear market.
Indeed, trying to “back up the truck” could cause some to exhaust their liquidity reserves well before the market has had a chance to bottom. As such, timing the bottom isn’t the way to go.
Rather, a more systematic approach, I believe, could be key to getting some great deals on the way down. As for the VTI and SCHD, I find them to be best-in-breed ETFs to target on the way down and over time, regardless of their trajectory.
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The post I’ve been dollar-cost averaging into VOO and SCHD – but what price would make you back the truck up? appeared first on 24/7 Wall St..
