A new story from Ric Edelman


Taking telephone calls here on the record of the show off the Purcellville Virginia we got David with us on the phone I you don't David hi Rick thanks for joining us on the show how can I help well I've got a question I've been asking myself for quite awhile that we all know that dollar cost averaging is the best way to periodically that money when you are adding to your portfolio but what do you do in retirement when you work now withdrawing money is there an approach that can take advantage of market volatility and not pound you when it goes the wrong way when your need periodic patrols yes and it's the exact same thing you just as dollar cost averaging tells you to invest a certain amount of money at a certain interval say invest a hundred dollars a week for fifty dollars a month or whatever the dollar amount and the interval need to be consistent that's how you add money to the markets you do the same thing when withdrawing money from the markets you withdraw a thousand dollars a month every month like clockwork or you do it once a year you know take your entire allocation for the year on January first Miller's it doesn't matter the amount and it doesn't matter the interval what matters is consistency so you'll be doing dollar cost averaging in reverse and you'll get the same benefits as you get when you dollar cost average to invest so it's really that simple very very easy to do it seems counterproductive because when you're putting money in the dollar cost averaging you're buying more shares when the market as well when you're buying fewer shares when the market hi when you take money out of the opposite your end up with Brian more shares on the market as well so wouldn't would not be counterproductive no it's not because the inverse is equally true although your correct it's a mirror everything is backwards it's equally backwards so just so you know you're assuming that the market is always working against you when you're withdrawing and that's not true sometimes the market is up at the moment you're making withdrawal and other times the market is down when you're making withdrawal so it all evens itself out just as it does when you're investing it's just literally a mirror image everything's backwards it's Bizarro universe but it all works okay well that that makes a lot of sense now good I'm glad so just decide how much money you wanna withdrawal and the interval but you're going to withdraw it and just do that on a long term consistent basis and will work out great thank you very much you're very welcome David thank you for calling let me make sure everybody understands what I'm talking about here the David's question about dollar cost averaging because it's a really really big deal dollar cost averaging is widely acknowledged as the best way to invest and many people don't fully appreciate the value and benefits of it so let me explain you see most folks when they're thinking about the investment decision or trying to answer the one question that all investors have always asked for all of millennia should I stay out and watch it go up where should I get them and make it go down I mean this is not the question you're asking yourself every day whether or not you should invest your fearful that if you invest today the stock market will crash tomorrow with your dumb luck and if you meanwhile sit on the sidelines you watch the stock market go to all time highs and then you'll kick yourself for not having invested yesterday dollar cost averaging solves that problem instead of investing a lump sum right now hoping that it's the right time you invest a little bit of money and you do it on a regular ongoing basis for example if you've got it let's say a hundred thousand dollars to invest you don't know invest a hundred thousand dollars today you invest ten thousand and a month from now another ten thousand a month after that another ten thousand you invest ten thousand a month over ten months what's going to happen you're going to get the average price of the ten month period and this helps you avoid the risk that you're putting money in at the wrong time because you put in ten grand today in the market crashes tomorrow okay you lost money on the ten grand but the other ninety grand is still safe and sound in your money market account and that's kind of the point it gets even better than that I'll run a little quick arithmetic game with you let's say you invest a hundred box into a stock mutual fund and the it's ten Bucks a share next month you do another hundred Bucks into the very same fund only it's now five dollars a share quick what's the average price of your investment what you're saying yourself for the first one was ten Bucks in the second one.

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