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Dollar-Cost Averaging Using the CAPE Ratio: An Identifiable Trend Influencing Outperformance
Presentation Scheduled for Monday, October 16, 2:30-3:30 pm
Anticipated CE: 1 MN insurance, 1 WI insurance, 1 CIMA, 1 NASBA/CPE &1 CLE Standard
Approved CE: 1 CFP
In practice, dollar-cost averaging (DCA) is most effective as a behavioral finance tool. DCA is used because investors (and arguably their advisors) are scared that equity markets could drop immediately after investing a lump-sum; investment advisers proposing a dollar-cost averaging approach have likely done so in an effort to reduce risk and minimize potential emotional regret on behalf of the client, not grow assets.
And while DCA does unarguably reduce risk (because the process of DCA means holding a large amount of cash for such a long time), DCA actually has also shown been to provide higher returns than lump-sum investing in multiple studies – at least sometimes. So, even though dollar-cost averaging is not conventionally used as a superior wealth-generation tool, are there still opportunities for it to be an effective portfolio strategy? And if so, how can advisors figure out the best opportunity to use DCA to not only reduce risk, but also generate greater wealth?
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