Dollar cost averaging is one of the best systematic investing strategies you can use
By investing a fixed sum at regular intervals throughout their working years, perhaps increasing that sum from time to time as their income rises, investors can largely forget about market trends. That’s because they’ll automatically buy more shares when prices are low, and fewer when they are high, and they’ll benefit from the long-term rising trend in the market. This investing technique is called dollar cost averaging. It’s a little like systematic saving, except that money is put into stocks (or mutual funds) instead of a bank account.
However, some investors try to apply the dollar cost averaging principle to the investment of lump sums, by spreading their buying out over a period of time. That’s different. This gradual buying is sometimes referred to as “averaging in“. For instance, suppose an investor wants to purchase $50,000 in stocks, but feels uncomfortable doing so all at once. The investor might resolve to average in by investing $12,500 every six months over two years.
However, an averaging-in program will improve financial results only if the investor happens to begin it when the market is headed down. Since the market goes up around two thirds of the time, on average, gradual buying is likely to cost you money. But gradual buying may still be worthwhile, if it lets you sleep easy.
For guaranteed success in investing, apply our three-part Successful Investor strategy.
Invest mainly in well-established companies;
Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
Downplay or avoid stocks in the broker/media limelight.
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The best retirement investments are the same for everyone. Are you surprised? You shouldn’t be.
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Some investors look at the most-recent stock market fluctuations and ask, could I have spotted them in advance, and capitalized on them?
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It’s important to make sure the cheapest stocks to buy are truly value stocks
It’s typically better to buy stocks when prices are down, not up. This rule applies to the most undervalued stocks on the market, just as it does to most stocks.
How does investing work best? When you have an understanding of these key investment principles and strategies
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What is a value stock worth to savvy investors who recognize its potential? Depending in part upon the hidden or undiscovered aspects of the stock, it could mean much higher stock values in the future and greater gains over the long term.
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