Dollar Cost Averaging and the Investor
November 3rd, 2007By: Stephen Bishop Jr.
What is Dollar Cost Averaging? A few have heard of it, however most have not. When investing your hard earned money, dollar cost averaging is something you might want to consider. So listen up! To explain dollar cost averaging to the every day consumer I will give a brief example:
Rather than investing your $1000 all at one time, in a stock for example, consider two things:
- The length of time that you will be investing in this particular stock
- How frequent you will be investing in this stock
Let’s say you decide to invest your $1000 in equal amounts over the course of one year. So you decide to invest $250 quarterly, for one year. That is; $250 every three months for 12 months. By doing this, you are more likely to purchase more shares at low prices rather than high prices. Simply put, you are trying to protect yourself from a downturn in the market that may occur shortly after your investment.
It is important to point out that the market does have a positive average rate of return. So by reducing your risk of a quick loss you may also be sacrificing return. While there are many people both for and against this technique, it is always something to consider when investing your money.
April 13th, 2008 at 9:20 am
Stocks are always in flux, sometimes they’re up, sometimes down. What I would do with $1000 using the dollar cost averaging is invest, say, $30 per month in a favorite stock and do it every month without fail. The idea is when the stock is down you receive more shares, when the stock is up you get fewer shares but the shares are worth more. Over time you’ll realize a positive return on your money. That is how dollar cost averaging will work for you.
Bob