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Why Volatility Can be Your Friend

June 11, 2010

Money-Guy 06-11-2010

While it comes as no surprise that it is a little harder to sleep at night when the stock market is bouncing all over the place, is there actually a way you can harness these big swings to benefit your portfolio and still get a decent night’s sleep?

The answer is YES, there is a strategy specifically designed for that purpose. But before we get into that, if you have not heard anything about HR 4213 (or the potential changes to taxation for S Corporations) and you are a small business owner, or you work with small business owners, you need to go do some research and read up on this bill. It has already passed in the House and is now moving to the Senate. As you listen to the show, I share some information I found on the bill and explain how this could potentially impact you.

But back to sleeping at night… the strategy I am alluding to is Dollar Cost Averaging. Rather than give you guys detailed show notes, I am going to give you a link the blog site, Oblivious Investor, where Mike did a post titled Greater Volatility = Greater Returns. This post does a great job of walking through some numbers and showing just how beneficial a diciplined DCA plan can be!

We also ran some numbers to see how well one of these plans would have worked through the crazy times of 2008 and 2009 (2 years where the market lost about 37% and then made almost 24%). As you listen, I share these numbers with you and try to paint a picture of just how much of a difference creating a strategy and sticking to it can make!

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