When it comes to investing everyone wants to buy low and sell high. If we could find the magic to always make that happen – we would all be sitting pretty. Since I don’t have that kind of magic, I stick to a simple investment strategy called dollar-cost averaging. In plain language, dollar-cost averaging is investing the same amount on a set schedule. For example you invest $500 (or $50 – any amount works) on the 15th of every month. Regardless of the stock or fund price – you invest the same dollar amount. If the price is up, you are buying less shares; and conversely, if the price is low, that same dollar amount will buy you more shares. Over time, this can result in a lower per share cost, but as with all investing – this is not guaranteed.
Why do I like this? Well, trying to time the market is very risky and at a minimum it is very time consuming. Keeping an eye on all of the variables can make me go cross-eyed! But perhaps more importantly, it removes the emotion from investing. If you do your homework, find a mutual fund that you like, and think long term, dollar-cost averaging makes investing a no-brainer.
Historically, the stock market is a great place to invest long term. Committing to a dollar-cost averaging investment plan assures that you are putting away money on a regular basis. This is key. Allowing dividends to automatically reinvest is yet another layer of dollar-cost averaging that is working for your benefit.
Dollar-cost averaging works for me. Have you ever thought about this investment strategy?