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Caring For Generations

How Does Dollar Cost Averaging Relate to Estate Planning?

On Behalf of | Jul 27, 2016 | Uncategorized

“Lump sums can come from several different sources – a pension payout, inheritance, the sale of property or a business, or even winning the lottery,” observes financial advisor Jennifer, of Portfolio Solutions. In the debate about whether dollar cost averaging is the best way to invest (spreading out investment buys over months and years as opposed to making a one-time big contribution to a portfolio), Jennifer takes a practical stance: “You invest money as it becomes available to you,” she states.

The theory of Dollar Cost Averaging, explains long time financial planning professional Tom McAllister, “is to have an average purchase price per share that is less than the average price of the shares over time.” Aware that some investment advisors recommend the use of DCA when making a lump sum investment such as with an inheritance, McAllister says that, although on the surface this advice may seem logical and appropriate, “the answer lies in the fact that long term investors would be better off investing every dollar as soon as possible”.

Why is that so? Stock markets historically have gone up 75% of the time and down just 25% of the time.  So, McAllister concludes, “all other things being equal, using dollar cost averaging instead of making an immediate purchase with all your available investable funds actually means you are likely to buy shares at higher and higher prices as time goes by.”

For most of our clients who own large estates and who envision leaving sizeable assets to the next generation, the Dollar Cost Averaging debate might be the least of their concerns. Studies have found, reports Kiplinger, that 70% of the time, family fortunes are lost from one generation to the next, with assets totally gone 90% of the time by the third generation.

Over our years of working with our estate planning clients, Geyer & Associates has come to an important realization: estate planning is really about the next generation rather than about one’s own. That means that, along with passing on assets, estate planning is about passing on wisdom about money management to younger family members.
“Many people, when they think about estate planning, think it’s a way of giving away their stuff,” Deborah Jacobs, author of Estate Planning Smarts, remarks. As estate planning attorneys, what we realize more and more every day we help clients make decisions, is that your estate plan represents a chance for you to make a very unique and very personal sum-up statement, and to pass along your value system to your beneficiaries along with your “stuff”!

Who knows if that discussion about the pros and cons of Dollar Cost Averaging might serve as a “jumping-off place” for a discussion about handling money wisely over time…