Start a Long-term
(With Dollar Cost
ITIPress.org - Soraya Nasrallah
Cost Averaging is a great way to heal those Bear inflicted wounds! You
select an investment and add a fixed dollar amount to it on a regular
(monthly) basis, regardless of market trends. The end result is usually a
lower average per share cost to the investor than the average price of the
shares over the time period.
Whether you are purchasing a mutual fund or an individual stock, you are
constantly invested in the market, not jumping in and out. With Dollar
Cost Averaging (DCA), you automatically buy fewer shares when the price is
high and more shares when the price is low. The goal of DCA is to obtain a
lower cost per share of stock.
Timing the market is extremely difficult and it requires you to be on the
lookout on a constant basis. The reality is that the most of us donít have
the time to be looking at every single move a stock or mutual fund makes
every day. DCA enables an investor to put their money to work and also
maintain their peace of mind. The best part of DCA is that you can even
have the desired fixed amount of money you wish to invest automatically
drafted from your checking account! This will help you to continually
invest for your future and not think twice about it! It is a great way to
fund any account, especially your retirement account (IRA). Investing a
lump sum at a specific time could possibly offer you a higher return, but
by investing a smaller sum on a steady basis you can decrease market risk.
We all know how the Bear market has treated us, and because of this many
investors are having a difficult time gathering up the money and
confidence to start investing again. But remember, you MUST continue to
fund your retirement! Donít expect a sudden market turn around to bring
back life to all youíre still holding. It will take time for that to
happen, and some investments might never return from the dead! For
investors who have been attacked by the Big Bad Bear, Dollar Cost
Averaging may be a great solution to get you back on the path to
Here are some basics
steps and tips to follow:
1. Figure out how
much money you can invest on a monthly basis.
Make sure this money is automatically withdrawn from your bank account and
invested. Pay yourself first!
2. Make a decision
as to where you wish to invest that regular dollar amount.
Remember, you may split this amount among a variety of investments. Do
your research beforehand, so that you wonít have seconds thoughts about
your decision and you will stick to it. Do not "trade" the account(s).
3. Donít confuse
action with performance!
Be patient when it comes to your retirement dollars. Many investors are
eager to buy and sell because it is more exciting. Unless you have a very
good reason to sell, donít!
4. Diversify your
Over time, solid dividend paying companies, mutual funds, individual
growth stocks and index tracking shares can offer you a great retirement
mix. How much you invest on a monthly basis will largely determine the
size of your retirement account in the future.
5. Invest an occasional "lump sum" or extra amount of money into your
account to help you get ahead of the game. Especially try to take
advantage if you are faced with a great buying opportunity due to a market
downturn. But always make sure that you continue to automatically invest a
fixed dollar amount. By doing this you will avoid being disappointed a few
years down the road, when youíll likely find out that if you had stuck to
the plan you would have made a lot more.
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