Dollar cost averaging through the Great Depression on clarkhoward.com

CLARKONOMICS: Dollar cost averaging is an idea that Clark has touted a lot recently. Yet many people are still skeptical about this concept of putting equal amounts of money into the market month-by-month -- much like you would by making a monthly or bi-weekly contribution to your 401(k) at work.

The prevailing attitude is, "If the market is tanking, I want to wait it out on the sidelines." But that's not necessarily a Clark Smart move.

Well, now the consumer champ has some numbers to back up his belief in dollar cost averaging, courtesy of The Wall Street Journal.

What if someone followed Clark's advice during the Great Depression? If you started dollar cost averaging on the market's peak day before the Depression hit, you'd be even by 1933. And by 1936, you would have doubled your money!

Contrast that with this scenario: If by happenstance you put all your money in the day before the bottom fell out, you wouldn't recover completely until 1954.

Clark learned an important lesson about dollar cost averaging in late September 1987. At that time, his brother joined an investment partnership with a lump sum of 100,000 that Clark was also involved in. By October 1987, his brother's money was worth $60,000. He made the mistake of using a lump sum instead of putting his money in month-by-month in equal amounts.

Need investment suggestions? See Clark's investing guide.

What others are saying

Vanguard Gold
We pride ourselves on service and standards that are hard to find in today's RMT industry. We work hard to be a step ahead of our competitors in customer service, speed, value and price. This is our main focus so it's not something we can be easily defeated in. We feel we have achieved this and we're confident enough to say that we guarantee your satisfaction 100%.
__________________________________________
Frank.L
Yes but when you really look at what is out there or is it their you will find that it is the only thing that can be said or done about the whole thing.
Vanguard Gold
By frank @ 04/09/09 09:23:26 PMreport abuse
Asset Allocation with Dollar Cost Averaging
All of you who think you're lost with DCA because the crash could be right before retirement are those who fail to allocate assets correctly. If the market crashes the day before you retire, and you lost 50% of your retirement, then you failed to allocate your assets properly over time. As you get older, your cash reserves should increase until at retirement, the majority of your money is cash (as in money market, savings, etc.) You should have a large enough principle to live off of. If you want to take advantage of a low market, invest extra money. Simply put, a disciplined DCA monthly contribution is the best way to invest and do other things with your time like enjoy life. Forget watching the market.
By Ben @ 03/27/09 08:07:10 AMreport abuse
DCA...HYPE AND FACTS
...lets face it...you can DCA and be in the hole 50% for years.....sounds so good, but in the last year you still lost around 50%....Clark refuses to admit this...yes, you may recover...but how many years....2, 15, 27.....or how long will you live....if you do recover you will look good..if not, year after year...you will look like a fool that lost 50% of his money.....unless you have 20 maybe years till retirement...this is hype that may or may not work.....funds that people DCA into the last year lost 50% anyway....people made no money since 1996....we are back to low low levels, a 5% savings account beat the stock market....stocks have been a sadistic enemy to your wallet...
By VOICE OF REALITY @ 03/26/09 04:30:21 PMreport abuse
dollar cost in
all bull----we still have not recovered from the 1st leg of the bear market in 2000. So the next leg---will destroy the rest off the dollar cost average in idea.
if you dollar cost average in from 1996 you lost big time---stupid idea
By Tim @ 03/21/09 06:46:21 PMreport abuse
DCA
I decreased my contributions may two years or 18 months before the crash in 2008, my thinking was the market priced high so I paid off debts instead. The market crashed and I tripled my contributions.I feel good about those decisions.
By Thomas DeAngelis @ 03/19/09 06:04:08 PMreport abuse
throwing money away
I disagree, after seeing my wife's contributions and her companies matching funds to her 401k go down the tubes quickly in the past few months..I am going to move the majority of the investments to stable interest funds. Last summer I moved a big chunk into bonds so we only lost 18% instead of 38% on our investments last year...now after watching the stocks lose even more, I'm hoping to stem the bleeding by getting out of the foriegn markets completely and only keeping 25% of her in a blended fund of stocks and bonds (which loses at a lesser rate than all the other stock options) When the market and the economy show signs of improving I will then reinvest. Your strategy of investing month after month makes sense if you never look at the market and don't need the money for 50 years...but personally i refuse to watch my money disappear month after month without doing something different...and as for the market timing advise that says your better off taking the losses so you don't miss out on the gains...phooey--- as long as you keep an eye on the market you can get back in and buy more stocks for the ride back up. the stock market has lost 43% in the last year..so if i pulled my money out last year and put it back in now I would have 43% more buying power, instead of watching 43% of my money go down the tubes.
By Dave @ 03/19/09 02:16:11 PMreport abuse
You shouldn't follow the Market. When a hot stock is there everyone starts investing, then when a stock tanks everyone sells. When everyone is freaking out and selling that is when you buy low, and when everyone is buying a stock that is going up that is when you use caution. I believe it was Warren Buffet who has this as his Mantra.
By Amber @ 03/19/09 02:08:10 PMreport abuse
Dollar cost Averaging
This is nothing new. A.L. Williams insurance was a leader in this concept with their "buy term and invest the difference" in a no-load stock mutual fund with automatic monthly draft contributions. This company revolutionized the insurance industry and eventually bought by Primerica. Probably the most impressive business story in history since it turned the richest industry in the world upside down.
By Brad Bahret @ 03/19/09 12:39:29 PMreport abuse

Vanguard Gold

We pride ourselves on service and standards that are hard to find in today's RMT industry. We work hard to be a step ahead of our competitors in customer service, speed, value and price. This is our main focus so it's not something we can be easily defeated in. We feel we have achieved this and we're confident enough to say that we guarantee your satisfaction 100%.
__________________________________________
Frank.L
Yes but when you really look at what is out there or is it their you will find that it is the only thing that can be said or done about the whole thing.
Vanguard Gold

By frank @ 04/09/09 09:23:26 PMreport abuse

Asset Allocation with Dollar Cost Averaging

All of you who think you're lost with DCA because the crash could be right before retirement are those who fail to allocate assets correctly. If the market crashes the day before you retire, and you lost 50% of your retirement, then you failed to allocate your assets properly over time. As you get older, your cash reserves should increase until at retirement, the majority of your money is cash (as in money market, savings, etc.) You should have a large enough principle to live off of. If you want to take advantage of a low market, invest extra money. Simply put, a disciplined DCA monthly contribution is the best way to invest and do other things with your time like enjoy life. Forget watching the market.

By Ben @ 03/27/09 08:07:10 AMreport abuse

DCA...HYPE AND FACTS

...lets face it...you can DCA and be in the hole 50% for years.....sounds so good, but in the last year you still lost around 50%....Clark refuses to admit this...yes, you may recover...but how many years....2, 15, 27.....or how long will you live....if you do recover you will look good..if not, year after year...you will look like a fool that lost 50% of his money.....unless you have 20 maybe years till retirement...this is hype that may or may not work.....funds that people DCA into the last year lost 50% anyway....people made no money since 1996....we are back to low low levels, a 5% savings account beat the stock market....stocks have been a sadistic enemy to your wallet...

By VOICE OF REALITY @ 03/26/09 04:30:21 PMreport abuse

dollar cost in

all bull----we still have not recovered from the 1st leg of the bear market in 2000. So the next leg---will destroy the rest off the dollar cost average in idea.
if you dollar cost average in from 1996 you lost big time---stupid idea

By Tim @ 03/21/09 06:46:21 PMreport abuse

DCA

I decreased my contributions may two years or 18 months before the crash in 2008, my thinking was the market priced high so I paid off debts instead. The market crashed and I tripled my contributions.I feel good about those decisions.

By Thomas DeAngelis @ 03/19/09 06:04:08 PMreport abuse

throwing money away

I disagree, after seeing my wife's contributions and her companies matching funds to her 401k go down the tubes quickly in the past few months..I am going to move the majority of the investments to stable interest funds. Last summer I moved a big chunk into bonds so we only lost 18% instead of 38% on our investments last year...now after watching the stocks lose even more, I'm hoping to stem the bleeding by getting out of the foriegn markets completely and only keeping 25% of her in a blended fund of stocks and bonds (which loses at a lesser rate than all the other stock options) When the market and the economy show signs of improving I will then reinvest. Your strategy of investing month after month makes sense if you never look at the market and don't need the money for 50 years...but personally i refuse to watch my money disappear month after month without doing something different...and as for the market timing advise that says your better off taking the losses so you don't miss out on the gains...phooey--- as long as you keep an eye on the market you can get back in and buy more stocks for the ride back up. the stock market has lost 43% in the last year..so if i pulled my money out last year and put it back in now I would have 43% more buying power, instead of watching 43% of my money go down the tubes.

By Dave @ 03/19/09 02:16:11 PMreport abuse

You shouldn't follow the Market. When a hot stock is there everyone starts investing, then when a stock tanks everyone sells. When everyone is freaking out and selling that is when you buy low, and when everyone is buying a stock that is going up that is when you use caution. I believe it was Warren Buffet who has this as his Mantra.

By Amber @ 03/19/09 02:08:10 PMreport abuse

Dollar cost Averaging

This is nothing new. A.L. Williams insurance was a leader in this concept with their "buy term and invest the difference" in a no-load stock mutual fund with automatic monthly draft contributions. This company revolutionized the insurance industry and eventually bought by Primerica. Probably the most impressive business story in history since it turned the richest industry in the world upside down.

By Brad Bahret @ 03/19/09 12:39:29 PMreport abuse

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Mar 18, 2009 -- Dollar cost averaging through the Great Depression

What others are saying