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Ep #42: Dollar cost Averaging

42, Podcast April 17, 2020

Praying for everyone during this quarantine time.

We have been trying to make the best out of it. We are mostly spending time in our backyard. We have these crazy things called sweet gumballs in our backyard.

They are EVERYWHERE. We have been trying to remove them, and it’s a real exercise..with racks and all. We were trying to find an easier method to remove them online, and we came upon people trying to sell them!!

Like $1/per gumball. We were shocked. Why would anyone try to sell or buy these awful things?? Apparently, we learned that these are used in magic to ward off evil!! And they were used by native Americans to treat the flu! They also may be components of tamiflu --a flu medication. We were joking about how these gumballs may be keeping us safe from corona! 

Also, I realized that it’s Ramadan next week!!! How awesome is that?? Every Ramadan has a different feeling, but I feel something extra special about this Ramadan. InshAllah, I stay alive and I am able to experience it with all the people I love.

I will not be recording any podcasts during Ramadan. Usually, I am ahead, and I record 3-4 episodes in advance, but I didn’t get a chance now.

I will still show up either on my blog or other social media stuff. And you can always contact me with anything. 

Before ending it for a month, I wanted to talk to you about dollar-cost averaging. I’ve been getting a lot of questions from people asking that if they have money, how should they invest? Should they invest all of the money at once or do it over time? 

There are 2 schools of thought on this :

Dollar-cost averaging --this is to invest your money over a period of time. For example, if you have 10k to invest, you could plan to invest $1k/month or $1k/week, or other ways you like. The idea is that psychologically, it may be painful to see a drop if the market crashes the day after. 

The truth is that the market is volatile, and it can plunge.

Now, what’s wrong with this?

It does sound right in theory and it would eliminate the risk IF the market goes down. But the problem is that it only works if the market is going down. What if the market rises? Then you’ll come out behind. 

The market goes up more often than it goes down. From 1970-2013, the market went up 33/43 years. Thus, 77% of the time, the market is going up. By dollar-cost averaging, you are assuming that the market will go down, which happens less often. 

You are missing the opportunity for the gain. Also, investing is for the long run, it is not the money you may need in the immediate future, less than 5 years. You should have a good emergency fund and safer investment options. For the most part, this is a psychological decision, not based on actual investing, but if this would work better for you, then no harm. 

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