I like owning ASX shares and regularly making new investments. However, it can be challenging to know when and how much to invest. A method called dollar-cost averaging could help solve some investment fears.
What if a better price were to come along next week? Should we wait until there is a bear market crash?
I don't think investors should wait until there is a hefty market decline to invest because we simply don't know when that will be. It could happen in a couple of weeks, or it could be years before major volatility strikes again.
Some market commentators believe that Donald Trump's victory in the United States election could lead to more volatility in the next few years.
Here's one investment strategy I plan to use in the next few years to help overcome this uncertainty.
Regular dollar-cost averaging
Dollar-cost averaging is the concept that investors can regularly invest money in the share market and buy shares, regardless of whether the share price is slightly higher or lower.
When share prices fall heavily, it can be scary to put new money into the market because of the fear that it could fall further. But I believe we should make sure that we take advantage of those lower valuations.
Lower share prices don't last forever, particularly when it seems like the light at the end of the tunnel is getting closer for a particular company, sector, or the whole market.
Having the discipline to keep investing ensures that we can buy at good prices, even when it feels uncomfortable.
Of course, the share market isn't always falling. Many ASX shares are resilient and can grow for an extended period of time. It would be unwise to miss out on those gains by not investing.
Winning, growing businesses tend to increase profit regardless of whether economic conditions are lean or booming. It could be a good idea to keep investing during the good times with a dollar-cost averaging strategy to ensure we benefit from the growth of those great businesses.
Where I plan to invest in ASX shares
I plan to invest only in ASX shares that I think are most likely to make more profit in four or five years and can succeed in a range of medium-term scenarios.
I will probably focus more on businesses that have defensive earnings and (in my view) can deliver shareholder returns of at least 10% per annum. Unless share prices fall to attractively low levels, I'll likely avoid Australian businesses that depend on a strong Chinese economy – the proposed Trump tariffs could have sizeable impacts on that.
Another area I'll focus on is ASX shares, such as real estate investment trusts (REITs), where higher interest rates have hurt the share price, but they could recover in the next two years as global rate cuts flow through the economy.
I plan to make two S&P/ASX 300 Index (ASX: XKO) investments early this week that I hope will be excellent long-term investments. I'll write about them as soon as the Motley Fool's disclosure policy allows me to.
I plan to use a dollar-cost averaging strategy with both stocks and regularly invest during 2025 because of how optimistic I am about their futures.
