Many economists and top market researchers are paid big bucks to predict the next move of the market. However, for many of us, it seems like these people can only explain the past rather than predict the future. Hence there is a famous saying that it is time in the market rather than timing the market that is a better strategy for most people.

What does this even mean? This means that having a longer term horizon is better than having a shorter term horizon.

One common method to do this is by dollar cost averaging. This means setting aside funds from one’s income to put towards purchasing the asset every period. The higher the price of the asset, the less of the asset one buys. Conversely, the lower the price of the asset, the more of the asset one buys. This averages out the price that one purchases the asset at over the span of multiple periods.

Many people have used this method to average out their cost of purchasing precious metals. It also takes the stress out of investing as one does not need to look at the price of the asset constantly and worry if the market will go against them.

However, one caveat for this method to work is that the price of the asset must have a long term upward bias. This method will not work if the asset does not have an upward bias in the longer term outlook. Hence why this method is only used for extremely conservative assets like precious metals and major index Exchange Traded Funds. 

The basics of this method is that one sets a fixed amount of money each period to allocate to this asset. For example, one can set aside $1,000 each month to purchase silver.

Some who are more adventurous or have more spare cash may want to be more aggressive but do not want too much risk by timing the market on a short term basis. These people set a target price or target drop percent from the most recent high to increase the amount of funds allocated to purchasing the asset. Following the earlier example, the person may wish to increase the purchase to $1,500 for that month if the price of silver falls more than 15% from its most recent high.

This increases the rate at which the average buy-in price is lowered, but at the same time, still does not assume any additional risk. The only downside to this is that the investor needs to keep an eye on the market price of the asset to be able to pounce when the asset price goes into the desired range.

In summary, while some may find the thrill of timing the market exhilarating, others may find that they would rather be able to sleep at night even in a bear market. Depending on your personality, the dollar cost averaging strategy may or may not be for you. But one thing for sure is that it definitely has worked for many people. The only thing to note is that the asset chosen is very important as this method will not work on an asset with high risk of going to zero.

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