One of the investment formulas that brought the mutual fund concept to the forefront nearly fifty years ago is known as Dollar Cost Averaging.
It works like this.
First, you make three decisions:
· What mutual fund will you choose to manage your investment account?
· How much will you invest each month in that account and when?
· What will trigger beginning to withdraw, i.e., sell shares from that account?
So perhaps your decisions set up the following:
· You will pick and open an account in January 2012 in the XYZ Growth Fund. Your initial investment is $1,000
· You will invest $100 on the 3rd Wednesday of every month
· You will begin withdrawing $200 per month on the 3rd Wednesday of every money, beginning in the month of January 2042, that being the month after your 65th birthday
The result:
So in this example, when the date of your first withdrawal begins, you will have $36,900 invested out of pocket. The market and the value of your mutual fund shares will have fluctuated throughout the entire 30 year investment period.
And likewise, throughout your monthly withdrawal period – the rest of your life – the value of the remaining shares in your account with also fluctuate.
But by following Dollar Cost Averaging as your investment strategy, your investment risk has been greatly reduced. Interestingly your opportunity for value gain has been dramatically increased.
The chances are that even after the methodical withdrawals, there will be a reasonably good corpus remaining when you pass away that your beneficiaries will inherit.
Using the Dollar Cost Averaging plan, there is little need for visits and consultations with a financial planner. In most cases, your CPA should be able to serve you just fine.
Bill Cherry, Real Estate Broker
Dallas - Park Cities
Since 1964
214 503-8563
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