Very very boring stuff: The soothing power of dollar-cost averaging
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Very very boring stuff: The soothing power of dollar-cost averaging

Apr 2022
Dec 2017
"If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring."
  • George Soros

You were fairly confident with your hand after the turn and you raise.

Now comes the river - but you didn't quite get the card you wanted.

Rationally, you know your odds of winning now are slim, unless you think your opponent is bluffing, but with all that cash in the pot, it's hard to fold.

Playing poker is a lot like investing - it's a zero-sum game that commands discipline and an unknown future. The best poker players and investors are disciplined and don't let emotions cloud their judgment.

We all think we are rational, but more often than not, we are led by our emotions. We are driven by optimism, euphoria, panic, and anxiety when we make investment decisions. This is why we need to have a disciplined investment strategy and invest regularly, rather than be affected by the noise in the market.

One of the simplest ways to be disciplined is through dollar-cost averaging (industry lingo). All you do is invest a predetermined amount of money into a predetermined portfolio at predetermined time intervals.

Example: Invest $1000 into a globally diversified low-cost index fund portfolio on a monthly basis

As the portfolio fluctuates in value, you stay your course, buying the same $1,000 every month.

As an arithmetic fact, you will buy less when the market is high and more when it is low. You reduce the risk of exposure to market fluctuations and your emotions.

This strategy also makes a lot of sense if you don't think you have enough money to start investing now.

One of the common misconceptions people have is that they want to put off investing until they have accumulated a "large enough" nest egg. This is bogus. The sooner you start building up an investment portfolio and the longer you stay invested, the more likely you are to reap the benefits and grow your wealth.

Dollar-cost averaging also takes away the temptation to time the market.

We all flatter ourselves that we can buy low sell high, but our very unsystematic (and human) behaviour often leads many of us to do the exact opposite.

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