FORGET ABOUT DOLLAR-COST
AVERAGING IN A BEAR MARKET
Dollar-cost averaging is another popular investing strategy bandied
about in the canyons of Wall Street. Catherine Voss Sanders wrote an
article entitled “The Plight of the Fickle Investor” in the Morningstar
Investor (December 1997), and she stated: “Because emotions and
hype can get in the way of smart investing, systematic dollar-cost
averaging is a sound strategy. …[I]n most cases, the dollar-cost averager
is going to beat the willy-nilly investor.”
To the contrary, never use dollar-cost averaging in a bear market,
since it puts you on the wrong side of the trade when the market is
tanking. It is the traders who are right when they say never average
down. Take the advice of Richard Russell (Dow Theory Letters, 1984):