Kenny Day cringes when he hears about the daily stock market pounding.
Yet even though his stocks and mutual funds have been battered by the brutal bear market, he continues to invest.
Every month this year, he has been plowing cash into both the Hartford Canadian Dividend and Hartford Canadian Value funds.
"I'm just trying to ride it out," said the 43-year-old manager with a Pembroke, Ont.-based heating and ventilation firm. "I still have a ways to go before I retire. The market has got to go back up eventually."
Mr. Day is among the investors who are embracing a dollar-cost-averaging strategy in today's choppy markets. It involves systematic investing of a fixed sum of cash regularly - such as weekly or monthly.
The fluctuating prices of a fund enable investors to buy more units in falling markets, and lower the average cost of their investments.
"It works better in bear markets and range-bound markets," said John Nicola, chief executive officer of Vancouver's Nicola Wealth Management.
While this strategy can be beneficial as a system of forced savings, he said "it does not work as well as lump-sum investing in bull markets because your cash is being dripped in as the market rises all or most of the time."
The only thing that one has to believe when investing regularly in a downturn is that, eventually, the markets will recover, Mr. Nicola said.
Edward Jones financial adviser Agnes Branecka agreed that it's better to use a dollar-cost-averaging strategy during volatile markets because it reduces the risk of investing a big chunk of cash during market uncertainty.
"It prolongs entry into markets so you can get more situations where the units are actually on sale," she said.
Mr. Day began his program last November, when he set aside $10,000 to be invested in two stock funds over 12 months. He has continued investing as the S&P/TSX composite index has tumbled 31 per cent this year.
"I am not one of those guys who looks at my funds every day," said Mr. Day, who helps coach his son's hockey team. "I have a job and a family. The less I look at it, the better."
There are various ways of doing dollar cost averaging. Investors can authorize a fund company to take a fixed amount from their chequing account regularly. Some have in-house programs with different wrinkles.
For instance, Toronto-based Hartford Investments Canada Corp. offers a bonus interest rate on a minimum $10,000 investment parked in a special money-market fund set up for its in-house dollar-cost-averaging program. From there, cash is deployed once a month into its funds. Investors can earn an annualized rate of 5 per cent for money to be invested over six months, and 4 per cent over 12.
Hartford, a unit of Connecticut-based Hartford Financial Services Group Inc., can offer a higher interest rate because it is subsidizing the difference to build its brand in Canada.
"It's a loss-leader product," acknowleged Mary Taylor, senior vice-president of marketing at Hartford Investments.
Hartford has attracted $110-million to its program during the first nine months of this year, compared with $65-million for the same period in 2007, Ms. Taylor said.
Dynamic Mutual Funds Ltd. also has an in-house program enabling investors to stash their cash in a special money-market fund, but there is no bonus rate. The minimum investment is $1,000, with the money deployed weekly into targeted funds over 12 months.
"We have seen a significant uptick in interest" with more than $220-million flowing into the program so far this year compared with over $30-million in 2007, said Dynamic executive vice-president Jordy Chilcott. The use of dollar cost averaging is an acknowledgment by investors and advisers that it is not possible to time the market, he said. "If everybody knew it was the bottom of the market, or a correction, they would move all their money in at that time."
A dollar-cost-averaging program allows investors to be invested in case the market bounces back, Mr. Chilcott said.
"A lot of your market appreciation comes in very short periods of time, and to be out of the market during that time, you risk missing that appreciation."
© 2007 The Globe and Mail. All rights reserved.
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