Investing in the Stock Market with a Lump Sum

In the prior post we went over buying stocks using Dollar Cost Averaging.  Today, we’ll go over another technique for investing in the stock market to potentially maximize your return and minimize your losses.  This method assumes you have a lump sum to invest.  So it can work mostly for those with an IRA that you fund yourself or for business owners.  Usually you can use this technique when you are in Financial Stage 4: Overflowing, especially.

Following this strategy you will invest in the stock market as soon as you possibly can in one lump sump.  For most, this means that you fund your retirement account up to the max allowed at the very beginning of the year.  Or, when you get a lump sump that you have decided to invest you do so right then.  The theory behind this is that you can’t time the market (as we’ve previously discussed) and history has shown that in general stocks go up over the long term.  So if you can’t predict the days they’ll go up then you should at least be “in the market” on those days.  Studies have shown that if you miss just a few of the best trading days then the returns you achieve are way lower than what they would have been if you were invested on those days.  The only way to be “in the market” is to invest.  You have ideally already planned ahead of time in terms of what you would be buying in order to align with your financial plan and investing goals.  Also, keep in mind that if you have money that you are open to investing in the stock market, and it aligns with your plan to do so, but you instead choose to hold off on buying then you have proactively made a decision to not follow your plan.

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