I grew up in a sailing family, and the first thing we were taught was that the wind was both an ally and an adversary. Like investing, having the wind at your back is both a comfortable and an expeditious way to get from point A to point B. On the other hand, sometimes you encounter a headwind. This point of sail is referred to as beating into the wind, and it’s every bit as uncomfortable a journey as it sounds.

To some investors, this might be an apt description for today’s investment environment, in which equity indexes near all-time highs may seem like headwinds to investment success. This might be particularly true for those who need to make sizable investments in—or change their asset allocations to—stocks. Maybe you need to deal with rollovers from a 401(k) or determine what to do with proceeds from the sale of a business. Regardless, you may be tempted to worry about the timing of your investments and, when faced with this emotional headwind, may opt to wait for a “better time” to invest. While no one possesses a crystal ball to help make perfect choices, there may be a better way to deal with this behavioral challenge: an equity investment plan (EIP).

Unlike a dollar-cost averaging strategy, an EIP focuses on your strategic asset allocation. Typically, an EIP involves three basic steps. First, to determine your appropriate strategic asset allocation. Next, to calculate the difference between the current allocation to stocks in your portfolio and your strategic asset allocation. Finally, you divide this difference into parts: an immediate investment to get things moving and a subsequent set of target equity weightings to be attained by specific dates. For example:

Bennyhoff_immediate allocaton


Investors often struggle with the timing of large investments, and fear of regret often results in inaction. While it is typically better in the long run to invest the full strategic allocation to stocks immediately (in view of an expected equity risk premium), your concerns should not necessarily be ignored. An EIP allows you to disconnect from the emotions of the market by absolving you of the timing of investment decisions. Instead, you can focus on bringing your portfolio’s stock allocations in line with specific weightings on the specific schedule you determined in the EIP process.

While our example uses quarterly allocations over a one-year period, the frequency and duration of an EIP can be chosen to suit your circumstances, although the overall period should not be too long. (For example, two or three years could be excessive.) Importantly, the dollar value of each transaction will vary as your portfolio’s value changes in response to investment returns. If the stock portion of the portfolio were to rise in value from one scheduled transaction to the next, then the dollar amount of the transaction would be less than if the stock value were to fall. In this way the EIP is adaptive to portfolio returns, unlike a dollar-cost averaging strategy.

The timing decisions for your investments can often be an obstacle to your investment progress. Whether in bull or bear markets, for some it never seems to be the “right” time to buy stocks, which is an understandable, if unrealistic, attempt to control the uncontrollable—accurately forecasting returns. An EIP can help separate the emotional aspect of investing in risky assets from the pragmatic. Although risk is explicit with stocks, some exposure to them is necessary for most investors to pursue the higher returns required for their long-run needs. To be successful in creating wealth, there are certainly other powerful tools at your disposal—e.g., increased savings rates, diversification, and asset allocation. However, an EIP can provide you with the means to overcome the emotional headwinds and navigate the rough seas that can derail otherwise well thought-out financial plans.



Note: Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.