The Dollar Cost Averaging Experiment – Let’s Try it Again in 2007

Fear and greed are the largest barrier between any investor and big profits in the stock market. When stocks are rising the fear of missing out (greed) takes over.  When stocks are falling, fear of being the last one on the boat is front and center.  Although, everyone knows the objective is to buy low and sell high – those two emotions lead most to do the opposite.  That’s a fact of trading.  The difference between a successful investor and one who is not is simple.  The successful investor has incorporated a strategy to minimize fear and greed while trading.

There are numerous strategies that one can use.  However, I believe dollar cost averaging is the best one for the average investor.  I have many articles on dollar cost averaging on this site.  I do suggest a slight twist based on where we are in the financial/hard asset cycle.  Read the “The No-Brainer Investment Strategy to Double-Digit Returns” for more details. 

Once again we will document dollar cost averaging into two Exchange Traded Funds (ETFs): Central Exchange Fund of Canada (CEF) – a gold and silver bullion ETF and GDX – a gold stock ETF.  Each month they will be tracked versus the market represented by the S&P 500.  Let’s see if we can nail double digit gains this year.  Here are the results after one month.

Table 1. CEF, GDX vs. S&P 500

  CEF GDX S&P 500 CEF GDX S&P 500
  Closing Price Closing Price Closing Price Mon. Return Mon. Return Mon. Return
1/31/07 9.55 39.60 1438.24 2.25% -0.78% 1.41%
12/29/06 9.34 39.91 1418.30      

Note: $1000 invested each month in CEF (total $1000) is worth $1,022 (2.25%).
Note: $1000 invested each month in GDX (total $1000) is worth $992 (-0.78%).
Note: $1000 invested each month in S&P 500 (total $1000) is worth $1,014 (1.41%).

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