Few people enjoy a budget and for many the goal of building wealth is so to get to the point that one isn’t needed. We’ve worked with clients at all ends of the wealth spectrum to help them evaluate their spending. Sometimes those with relatively smaller incomes are excellent savers and for some, the more they have, the easier it is to overspend.
What To Do With A Lump Sum of Cash?
Statistically we know that investing a lump sum in equities beats dollar cost averaging 75% of the time. And we know that dollar cost averaging outperforms a buy the dip strategy 60 - 75% of the time. So it seems like a no brainer to go ahead and put that cash to work all at once. In volatile markets like these that can be a scary prospect though. Right now it seems like the economy and markets could easily get worse before they get better. The good news is you don’t have to choose among these three strategies. You can take a hybrid approach, which combines all three. We know that putting money to work and keeping it invested for the long haul is the most important step one can take towards building wealth, regardless of the exact timing of how you get started. So while statistics tell us that investing a lump sum all at once is a better strategy 75% of the time, it really hurts when you put a lump sum to work and then the markets crash, 20, 30, 40, or 50%! For many clients, they only have a large sum to put to work once or twice in their lives so the pressure feels much greater than a robotic approach to investing might suggest.