Growth with Controlled Risk

The investing culture claims ownership of a pretty unique lexicon, with aphorisms as ubiquitous as the financial advisers that peddle them at their seminars. Though often cliché, their origins are steeped in wisdom, so it is prudent to be contemplative about them. Perhaps one of the most memorable, and apropos for our conversation, is the mantra of buy and hold strategists:  Its time in the market, not timing the market that matters; author unknown.

You’ve likely heard this financial pericope and might even nod your head in affirmation to its sensible advice. Right or wrong, it is a buttress for the pragmatic and it has been conjured up in conversation time and again. To that end, I will invoke it once more…but for a different reason.

One of our quarterly strategies pulls this saying into context to posit a different interpretation; it’s very simple and likely been part of your investing playbook – it’s called Dollar Cost Averaging. And it is a fantastic way to experience long-term investing.

For those of you that are not familiar with Dollar Cost Averaging (DCA), I’ll refer back to our topic slogan: its time in the market, not timing the market that matters.  DCA is very simply the embodiment of controlled market timing by applying a pro rata acquisition (or liquidation) of securities over a defined time period. I’ll clear that definition up with this example:

Jill has $1,000,000 of investable cash and wishes to deploy her nest egg in a growth portfolio. However, Jill has reservations about the stability of the market and is nervous about positioning her assets for fear of experiencing an immediate market drawdown. Her Investment Adviser concurs and proposes a DCA strategy.

Jill’s adviser selects the growth model that is appropriate for meeting Jill’s needs. They review the securities and gauge the assumed risk. The adviser then proposes to Jill that he position the assets using the following formula: $100,000 deployed pro rata/month for 10 month.

In this way, the adviser is taking advantage of market volatility and mitigating the percentage of the investable assets that absorb that volatility. Each tranche of deployment will buy securities within the model. Sometimes the purchases will occur during a market pull-back, while other months may be during market expansion. In the end, the adviser has assuaged the concerns of her client and secured a cost basis most closely resembling the ten month moving average of that model.

By the way, Jill can execute the same DCA strategy on the way out of the model, in lieu of a complete and immediate liquidation.

It’s a simple, and reasonable, approach to investing in equity, or bond, markets over time, and should be considered an option for the risk averse investor.

If you have questions about this strategy, or would like more information, please reach out to us at