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Dollar-cost averaging is a common method of investing for the long term.
If you’ve been burned before by buying high and selling low, you may want to think about placing your investments on cruise control with dollar-cost averaging.
Dollar-cost averaging is the practice of investing a set amount each month in a particular investment vehicle. As the share price of your investment fluctuates, so will the number of shares your set amount buys. Sometimes you will pay more and sometimes the stock or mutual fund will decrease in financial worth, allowing you to purchase more shares.
Americans set a record in 2004 for investing in IRAs and employer-sponsored savings plans, displaying a renewed interest in this old technique. With the boundless and assorted information available on investing, many Americans have chosen to stop chasing yesterday’s high returns. Using dollar-cost averaging helps them ride out the ups and downs of the market.
Dollar cost averaging involves endless investment in securities, regardless of altering price levels. Investors should think about their ability to continue purchases through periods of low cost levels or chancing economic conditions. Dollar cost average does not guarantee a profit and does not protect against a loss in a decreasing market.
Dollar-cost averaging isn’t for everyone. Short-term investors and those concerned about market volatility will not benefit from the slow and steady pace of dollar-cost averaging. Always talk with with a financial professional before investing. For those who want to invest a consistent amount every month and potentially lessen the effects of market volatility, it might be an option.
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