Benefits of Dollar Cost Averaging

Hugh and Maria had some RRSP’s when they first came to our office.  As a young married couple in their early forties, they had not even begun to think about retirement planning.  Hugh works for the city and has a good company pension.  Maria works as an administrator in a small office where there is no pension plan.  She understood the value of regularly depositing to her RSPs but was making contributions inconsistently.  the first thing we did was set up a regular monthly deposit to Maria’s RSP from their joint bank account.  Although it was an adjustment to watch that money leave their bank account each month, they believed in the long-term plan that we had discussed and were willing to stick to it.

Then the downturn in the market made things a little bit more interesting.  Like most investors, they became unsure of what the future held.  Emotions got the best of them and they panicked.  Hugh wanted to move all their investments out of the market and stop the monthly contributions, “just until things calmed down in the markets”.  After meeting with them to review and remind them of the long-term plans, we were able to calm their fears and get them to stay on course with their monthly deposits.

When the recession ended, their portfolio quickly recovered, one of the benefits of dollar cost averaging.  The monthly deposits made in the downturn were now worth that much more.  Today, they are very grateful that they stayed with the plan and are looking forward to a full and happy retirement.

“This is the first time we have ever experienced a downturn in the market and we were not sure if we wanted to continue investing.  Looking back it was difficult to watch that money leave our bank account every month, knowing that the investments were not performing well.  As we look at our portfolio today, we are so grateful that we did not allow our emotions to throw us off course.  Meeting with Brad to review our long term plans calmed our worst fears.  It is one the best financial decisions we have ever made.”  Hugh and Maria B.