Riding the Storms Out
Dollar-cost averaging is a popular method of investing for
the long term.
If you’ve been burned before by buying high and selling low, you may want to consider putting your
investments on cruise control with dollar-cost averaging.
Dollar-cost averaging – the basic premise behind employer-sponsored savings plans like 401(k)s –
is the practice of investing a set amount each month in a particular investment vehicle. As the share
price of your investment fluctuates, so will the number of shares your set amount buys. Sometimes you’
ll pay more and sometimes the stock or mutual fund will decrease in value, allowing you to purchase
Americans set a record in 2004 for investing in IRAs and employer-sponsored savings plans,
indicating a renewed interest in this old technique. With the vast and varied information available on
investing, many Americans have chosen to stop chasing yesterday’s high returns. Using dollar-cost
averaging helps them ride out the ups and downs of the market.
Dollar cost averaging involves continuous investment in securities, regardless of fluctuating price
levels. Investors should consider their ability to continue purchases through periods of low price levels
r chancing economic conditions. Dollar cost average does not assure a profit and does not protect
against a loss in a declining market.
Dollar-cost averaging isn’t for everyone. Short-term investors and those concerned about market
volatility won’t benefit from the slow and steady pace of dollar-cost averaging. Always meet with a
financial professional before investing. For those who want to invest a consistent amount each month
and potentially lessen the effects of market volatility, it might be an option.
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