Investing
Getting Started

Establish Your Goals

The Power of Time

All About Risk

Where to Invest

Investing Consideration

Investing Techniques

Whats Right for You?

Portfolio Basics
Specific Goals
Investment Experts
Investment Clubs

Search Ms.Money
Search this site
powered by FreeFind
FinancialInvestingBankingPlanningCareerPurchasesCommunity

Dollar Cost Averaging

"This is one of my favorite strategies because it can be put into place regardless of your current financial status."

- Allyson Lewis, author of
The Million Dollar Car and $250,000 Pizza

What matters the most is not how much you invest, but simply that you do invest. You can always increase your investment amounts as time passes and your income increases, but what's most important is to:

  • Start now.
  • Start small if you have to.
  • Be consistent.

It can be pretty frightening to dump a large sum of your hard-earned money into an investment all at one time. That's why it makes sense to invest gradually, with small amounts over time.

Better yet, the advantage to regular investing--which is also called dollar cost averaging--is that you may actually buy more shares over time than you would if you invested your money all at once. See how this works in the table, below.

Invest $200 a month for six months:

Month

Price Per Share

Number of Shares Purchased

January

$15.00

13.33

February

$15.00

13.33

March

$13.00

15.38

April

$12.00

16.66

May

$14.00

14.28

June

$10.00

92.98

Total

$79.00

92.98

Total Investment

$1,200.00

 

Average PRICE per share

$79 / 6 = $13.16

 

Average COST per share

$1200 / 92.98 = $12.90

 

When prices rise, your regular investment buys fewer shares. When prices drop, your same investment buys more shares. The result is that the average cost per share ($12.90) over time will generally be lower than the average price you paid ($13.16).

This strategy allows you to take advantage of market fluctuations, so you can feel good about your investment plan even when stock prices tumble. That's when you'll do the best bargain basement shopping.

 Inflation

 Compounding

 

 Dollar Cost Averaging

 

 

 

 

Site Map | About MsMoney.com | About Tiffany Bass Bukow | Contact Us | Privacy | Terms of Use

 

Copyright © 2006 MsMoney.com, Inc. All rights reserved.
MsMoney.com is a trademark of MsMoney.com, Inc.