Market volatility often prompts investors to ask me to raise cash in accounts. Market rises prompt calls requesting me to put it back to work in the market. It’s not that simple.

The concept of dollar-cost-averaging teaches us that putting cash to work can be pretty tricky. In theory, if you buy the same $100,000 investment in pieces of $10,000 over a 10 week or month period, you will most likely pay less per share on average than if you put the entire amount to work all at once.

Global economic events in the first quarter of 2011 illustrate this point quite well:

“The stock market as measured by the S&P 500 Index, gained 5.9% in the first quarter of 2011 and marked the best first quarter gain since 1998. It was not a smooth ride higher as the index gained 7% in the first six weeks of the year, gave up all of those gains between mid-February and mid-March, then moved higher in eight of the last eleven trading sessions to finish out the quarter. Throughout the quarter, potholes aplenty attempted to impede the market’s move higher: crippling snowstorms that buried most of the country in January, a potential U.S. government shutdown, state and municipal budget battles, ongoing European debt issues, oil prices above $100 per barrel and gasoline prices approached $4, violence and political uncertainty in North Africa and the Middle East, and the earthquake, tsunami, and nuclear accident in Japan.”~Jeffrey Kleintop, CFA/Chief Market Strategist/LPL Financial.

The second quarter will undoubtedly bring us all kinds of new issues to content with and following our plans will likely prove to be the best way to deal with them all.

Cash is useful and we will strive to maintain appropriate levels of it per market conditions so don’t let it worry you too much.

Until next week,
Susan R. Linkous
“Susan On Money”

Note: Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.