During the accumulation phase, what are you accumulating?

Money or dollars are the most common responses, but your balance ultimately is tied to the number of shares you own of that mutual fund you own. The more shares you own, the better off you are as the price goes up over time. By investing in your 401k every payroll, you’re practicing in a prudent strategy called Dollar Cost Averaging; investing equal dollar amounts at regular intervals. You’re buying no matter what the market is doing and this discipline of regular investing ensures you won’t drop out when the market turns bearish. 

Let’s take a look at an example:

By the end of October and the low of the market, you would’ve had a negative return, but by the end of December, you’re showing a positive return. You achieved a positive return by focusing on a proven strategy and ignoring the noise behind the basket. As an added bonus, your mutual fund may distribute dividends and capital gains. When those are reinvested back into the fund, this also helps to add shares to your account.

Of course, Dollar Cost Averaging cannot assure a profit or protect against loss in a declining market. Also, since the program’s benefits are realized over time, you should consider your financial outlook before you start and be prepared to stay the course during periods of low prices as well as high.

 

Jane Smith

First Merchants Private Wealth Advisors products are not FDIC insured, are not deposits of First Merchants Bank, are not guaranteed by any federal government agency, and may lose value. Investments are not guaranteed by First Merchants Bank and are not insured by any government agency. This material has been prepared solely for informational purposes. First Merchants shall not be liable for any errors or delays in the data or information, or for any actions taken in reliance thereon. Any views or opinions in this message are solely those of the author and do not necessarily represent those of the organization.