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Dollar-cost averaging may make sense

I’m struggling with what to write about this week because everything still seems so uncertain.

The market has shown some signs of resilience recently, but I’m still skeptical.

Some investment firms like Zack’s Research are suggesting a gradual allocation into stocks, even while the jury is still out on when we can expect the market to rebound.

Zack’s gives the example of a person with $30,000 to invest in the market.

That person should incrementally add to his or her positions in $5,000 or $10,000 increments, according to the research firm. The dollar-cost averaging approach makes sense, according to Zack’s, because no one can accurately predict the bottom.

By dollar-cost averaging, one has a better chance of taking a position that will put one on better footing once the market returns to its full glory, according to the research firm.

I currently dollar-cost average with a Vanguard account that has a total stock market index fund and two international funds.

Each month a certain amount is drawn from my bank account and deposited into Vanguard.

Yes, even though I’m guilty of market timing in the account I typically trade in, I do still believe in making regular contributions to a retirement account.

Granted, that retirement account has been cut in half since the market began its downward spiral more than a year ago. But I’m still picking up shares at cheaper prices and I have no doubt that when the market returns to normal I’ll be sitting pretty.

Credit cards to implode next?

Meredith Whitney, the woman known for predicting the recent banking crisis and the CEO of Meredith Whitney Advisory Group LLC, is now forecasting another looming crisis ahead of us.

In a recent editorial in The Wall Street Journal, Whitney discussed how credit cards will likely be the next credit crunch in the United States.

She predicts that more than $2 trillion of credit-card lines will be cut in 2009 and $2.7 trillion by the end of 2010.

“Inevitably, credit lines will continue to be reduced across the system, but the velocity at which it is already occurring and will continue to occur will result in unintended consequences for consumer confidence, spending and the overall economy,” Whitney wrote in the Journal. “Lenders, regulators and politicians need to show thoughtful leadership now on this issue in order to derail what I believe will be at least a 57 percent contraction in credit-card lines.”

Whitney acknowledges in the piece that credit was given away to freely in recent years.

But, “If credit is taken away from what otherwise is an able borrower, that borrower’s financial position weakens considerably,” she writes. “With two-thirds of the U.S. economy dependant upon consumer spending, we should tread carefully and act collectively.

Indeed.

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