Episode 48: DCA: Discipline

Another advantage of Dollar Cost Averaging (DCA) is that it may better promote investing discipline than Lump Sum. What is “investing discipline”? How is it beneficial for investors in building wealth?

All that and more in Episode 48 on the Wilson Wealth Management YouTube channel.

“What is ‘investing discipline’? Is that not the same thing as ‘consistency’?”

Investing discipline and consistency are related. But there are a few important differences.

In a perfect world, investors create comprehensive investor profiles that drive target asset allocations that reflect the individual’s unique circumstances. That leads to creating a personalized investment portfolio. One that is built in a structured way over time.

In the real world, this often does not happen.

Now, DCA may not assist in the target asset allocation. But it can help you better “stay the course” in building a structured investment portfolio.

“How can DCA help me improve my investing patterns and behavioural issues?”

If you intend to invest $400 per month into your asset allocation. That is consistency.

The DCA discipline factor is in “staying the course” during real or expected turbulence.

Maybe markets are at all-time highs and you are worried about a correction. If you think markets are overheated, should you invest that $400 or wait until after the crash?

Maybe everyone is buying heavily into a stock or sector and you have a “Fear of Missing Out”. Should you also jump on board the hype train?

Emotions and outside influences can easily creep into investment decisions. Causing you to deviate from planned funding patterns. Adhering to a disciplined investing plan will help minimize that side of the equation.

It will keep your investing consistency by being disciplined.

As an added bonus, your increased investing knowledge will also help maintain your discipline. How often, in previous episodes, can we seen that the ability to properly time market fluctuations is poor.

Even for investment professionals who actively manage portfolios. It is actually difficult to pick winners and losers and time markets. As well, we saw that missing out on only 5 or 30 of the best days, leads to significant negative impact on returns. That understanding of investing realities will also help you better “stay the course” when your gut is begging you otherwise.

“What other things can help maintain discipline?”

We will review investment quality in a future episode, but that is a big factor in maintaining discipline.

Part of the discipline breakdown relates to (perceived) poor investments or ones that have reached their peaks or valleys. Should I sell? If so, invest in what? Should I buy more in a down market as this asset will rebound? Or should I sell because it will never return to its previous value?

Investing in quality assets reduces these concerns. Now, what is a quality asset? That is the question we will cover later this month.