CLARKONOMICS: Dollar cost averaging is an idea that Clark has touted a lot recently. Yet many people are still skeptical about this concept of putting equal amounts of money into the market month-by-month — much like you would by making a monthly or bi-weekly contribution to your 401(k) at work.
The prevailing attitude is, “If the market is tanking, I want to wait it out on the sidelines.” But that’s not necessarily a Clark Smart move.
Well, now the consumer champ has some numbers to back up his belief in dollar cost averaging, courtesy of The Wall Street Journal.
What if someone followed Clark’s advice during the Great Depression? If you started dollar cost averaging on the market’s peak day before the Depression hit, you’d be even by 1933. And by 1936, you would have doubled your money!
Contrast that with this scenario: If by happenstance you put all your money in the day before the bottom fell out, you wouldn’t recover completely until 1954.
Clark learned an important lesson about dollar cost averaging in late September 1987. At that time, his brother joined an investment partnership with a lump sum of 100,000 that Clark was also involved in. By October 1987, his brother’s money was worth $60,000. He made the mistake of using a lump sum instead of putting his money in month-by-month in equal amounts.