In these uncertain times filled with events seemingly beyond our individual control, what is an investor to do? Talk of recession, waning consumer confidence, growing unemployment and now catastrophic international events affecting global markets hits one like a deer caught in the headlights, so to speak.

A little background first; as discussed here in an earlier article I penned, the “correction” the stock market had been experiencing since March, 2000 was richly deserved, no pun intended. The momentum-investing strategy that so many pursued in 1998 and 1999, where folks bought stocks simply because those same stocks were going up, created over-bought conditions that due to the laws of gravity, had to come back down to earth. It’s that simple.

Unlike the 1987 correction, a brief horrific sell-off was not in the cards, but instead a more typical bear-market condition emerged, characterized by what Wall Street used to call in the seventies “death by a thousand cuts.” As businesses retrenched on spending, the consumer held up some sectors of the market by their spending. Where to from here?

It doesn’t matter. Unless one is convinced that America’s predominance is over, the up’s and down’s we’re currently experiencing are no different in effect than any other 10 year period over the last century in U.S. history, though the “names” have changed. The key is the 10 year period. Trying to predict timing of events (or individual stock movements in the short-term) takes one from investing to gambling. You can do it, but at your own risk.

For the rest of us? Oddly, the “less-experienced” investor has it better here than the more “experienced” investor. Take the typical employee working for a company or school district. Every pay period a small deduction is made out of the earnings, adding to for example a 401(k) or 403(b) retirement plan. Every pay period, whether the market is going up, down or sideways a set dollar amount goes into, typically, a stock-based mutual fund provided by the employer. A set amount on a regular schedule. This is called “dollar cost averaging.”

Using this strategy, you’ll buy fewer shares when the price goes up and more shares when the price goes down. Dollar cost averaging does not ensure a profit nor protect against loss in a declining market. And you should consider your financial ability to continue your purchases through periods of low price levels (if you’re not in an automatic investment program like the above referenced retirement programs). But, over the long-term, the average price per share you paid will most likely be less than your average cost per share to you as markets recover over time. Hence, you are able to take advantage of market fluctuation without regard to market timing.

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