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Dollar Cost Averaging

Dollar cost averaging
Market go up…markets go down. Doesn’t it make sense to buy more when they’re down?

Dollar cost averaging is one of the most powerful concepts that affects you as a retail investor.  It is also one of the simplest, most effective, and virtually idiot-proof ways to get both time and math working for you.

You get time working for you, because regardless of how much money your have to invest, you can get started right now.  Because you choose the amount you are able to invest, dollar cost averaging also allows you to make regular investments at a level that you can afford throughout the year.  Once making these investments becomes one of your monthly money habits, you won’t even notice the “missing” money.  Consider it a monthly bill; one that must be paid not to a bank or utility, but to your future self.

Dollar cost averaging gets math working for you because you automatically buy more shares when stock prices are lower, and buy fewer shares when stock prices are higher.

Dollar cost averaging in action

Lets look at an admittedly simple, but illustrative, example: Continue reading Dollar Cost Averaging