BMO Nesbitt Burns
16775 Yonge St
PLANNING & ORGANZING YOUR WEALTH
Many individuals are sitting on higher than ideal levels of cash, nervous to get back into the market and hoping to time their re-investment at the bottom of the next pullback. However, there is a flaw in this approach.
The market typically has pullbacks of 5% or more during the course of the year. Since the bottom of the market in 2020 we have seen 7 pullbacks, which is a healthy testing of market strength. This frequency of pullbacks has caused people to think they should wait until the next pullback to deploy cash, but it is important to remember that the market often first increases before a pullback. Therefore, there is no assurance that you will actually be buying at a cheaper level. Even if you could time the market perfectly, you may still be buying in at a price higher than today. Typically, we advise clients looking to deploy cash to pick a time frame, perhaps 3 to 9 months, and then we allocate these funds into the market in equal installments over that time. By using this ‘drip investing’ approach you get the benefit of averaging in and if you do get a pullback over that window of time then you can accelerate the pace of investing. Waiting until a pullback which might never come or may come at a higher level isn’t historically a good or a consistent strategy. It’s common that investors end up in a state of analysis paralysis and finally buy in much later than they should have.
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