Should You Try to Market-Time Your Dollar-Cost Averaging Strategy?

In this segment of the Sept. 19 MarketFoolery podcast,Chris Hill, Stock Advisor Canada's Taylor Muckerman, and Million Dollar Portfolio's Jason Moser explain the finer points of dollar-cost averaging, the value of the method, and when not to use it.

A full transcript follows the video.

A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

This podcast was recorded on Sept. 14, 2016

Chris Hill: For a dollar cost of averaging strategy, is it historically better to save your money for a few months and wait for dips, or buy each time you have the money? Dollar cost averaging by definition is you've got a fixed amount of money and you are regularly investing it on a schedule. To that question, to Gary's question, Taylor what do you think?

Taylor Muckerman: I do. I invest through my 401(k) twice a month, but then I also have my own funds where probably treat it a little bit more like he's talking about -- waiting for a dip or waiting for a stock that I'm watching to pull back, or maybe a stock that I already own to pull back a little bit. I do believe in that monthly or every couple months adding to the market, because you do over time tend to get a better value at certain points. But I guess I like being two times a month because January and then Brexit. Maybe I got in there before or after at the same time. I believe in dollar-cost averaging, rather than just waiting to have a huge lump sum and dumping it in, because what if then the market falls two weeks after that? You've basically treated your entire savings as that one investment, rather than waiting until right after or right before and splitting it in half. I'm a big believer in dollar-cost averaging, at least with my 401(k).

Chris: Yeah, I was going to say Jason, if you've got a 401(k) or any regular retirement savings plan, that's maybe the easiest way to dollar-cost average, but to Taylor's point, if in addition to that you can put away a little money on the side and keep a watch list, then you don't have to choose.

Jason Moser: Absolutely. I think that's just it. You don't have to do one or the other. I think that's the best answer is that you do a little bit of it all. Just like Taylor was saying, I dollar-cost average through my retirement plan here, and that just occurs with every paycheck, but then I keep an IRA and I have a discretionary account where cash is just in there and I can be more opportunistic when I want to be more opportunistic. I'm able to do both, and I think that's the ideal situation. I know it's not always very easy to get there. It may take a little bit of time to save up that money that you have to go out there and be opportunistic, but again, I think it's a great way to be able to invest is to incorporate both strategies.

Taylor: If you have that schedule set, it gives you a routine so that you're not necessarily investing based on emotions the whole time. Just letting that portion be automated, consistently set a schedule so that if you deviate from that, then it's you to blame, rather than the schedule to blame, for the most part.

Jason: Yeah, it protects you from yourself almost. You always have this inclination that, "Man, I know what I'm doing. I can go in there and [crosstalk 00:11:19]." The bottom line is no one's perfect, especially in investing, and I think that's the beauty of dollar-cost averaging. It really does, it takes the thinking out of it, and you're going to inevitably look at those times and say, "Man, I wish I could've been more opportunistic."

Taylor: Yeah, exactly.

Jason: Double downed on my 401(k) or whatever it was. There are also going to be other times where you're going to be seeing the opposite play out, and ultimately that regular intervals investing in dollar-cost averaging, it just protects you from yourself. You always think you're better than you really are.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.