It’s the start of a new year, and many of us are thinking about what changes we want to make in our lives, or what things we want to tackle that we have been putting off for our future selves. At Earth Equity Advisors, we often hear from people ready to start investing their cash.
Here’s the situation. You’ve saved up enough cash for an emergency fund and you’ve paid off any high-interest debts. But now that those steps are all done, you find that you have extra cash, and you don’t know what to do with it. Maybe you’ve been saving extra each month. Or maybe you’ve sold a house and you don’t know what to do with the proceeds. Or (we hope not) perhaps you lost a loved one and inherited cash from them.
The main question everyone asks is, “How do I know when the time is right to invest this cash?” This is especially true when the market is at a high and you’ve always been told to invest low. Unfortunately, the answer is that you don’t ever really know when the right time is. No one can truly (legally) time the market – consistently buy at the lowest point and sell at the highest point. We have a lot of different ways we can analyze current market conditions and stock prices, but at the end of the day there are no guarantees, or we’d all be billionaires.
So, what do you do? We often recommend something called “dollar-cost averaging.” What that means is that you invest a portion of your cash at the beginning of each month for a number of months, regardless of what the market is doing. And then once you have finished that process, you stay invested for the long haul. It helps take the anxiety out of deciding when to invest and helps you pick up momentum to reach your goal of fully investing the cash.
The other benefit of dollar-cost averaging is that if the market goes down, your investments are spread out during that time period. But the reverse can also be true – if the market goes up while you’re investing each month, you could have been better off investing it all at once. There is no perfect solution to the question of when to invest a chunk of cash, but we believe that taking a step each month will get you closer to your long-term goals. And if the cash is just sitting while you debate what to do, it’s not growing very much.
At Earth Equity Advisors, your advisor will help you determine if dollar-cost averaging is right for you. They will also help you decide the number of months to deploy your cash and present you with sustainable, responsible, and impact investing options. The timeframe will be unique to you, based on your comfort level with risk and how long you plan to let your investments grow. Even after your cash is fully invested, your advisor will monitor the current market conditions and make adjustments to your account as needed.
So, are you ready to evolve your investments? Contact us for a free consultation!