Dollar-cost averaging is the strategy of spreading out your stock, fund or other investment purchases by buying at regular intervals and in equal amounts.
- The practice of investing a consistent dollar amount in the same investment over a period of time.
- The method of dollar-cost averaging reduces investment risk. Remember that it is almost impossible to determine a market bottom, which is why dollar-cost averaging can help smooth out market timings. It is a simple discipline approach that help investors avoid the temptation to “time the market” and reduce the impact of volatility. With dollar-cost averaging, more shares are purchased when prices are falling but less as they rise.
- Dollar-cost averaging reduces the emotional component of investing. by investing mechanically. By buying a certain dollar amount of the preferred investment, the fluctuation of the wild price swing of the market (down and up market) could be avoided.
- Dollar-cost averaging allows investors to avoid bad timing of purchasing an investment. If investors invest all the money at once for a particular investment and then there is a big market downturn, investors would have ended up loosing more money than if they periodically purchase a set amount for that investment.
- An inexperienced investor should consider using dollar-cost averaging when purchasing an investment.
Therefore, making periodic investments, by using dollar-cost averaging, regardless of what direction the market is moving, is an effective way to invest for the long term.
Dollar cost averaging is the best for long term investment, especially in volatile market.
Dollar cost averaging is best for all investment for steady growth.