Share this Page URL
Help

Lesson 13. Choosing a Strategy > Dollar Cost Averaging - Pg. 77

Choosing a Strategy 77 Dollar Cost Averaging Dollar cost averaging is another wonderful investment strategy that merits serious consideration by newer investors. In dollar cost averaging, you invest a specific amount at a regular interval: taking a set amount out of each paycheck, for example. The critics are undecided whether this type of investing produces an optimal or a mixed result, and statistics can be found to accommodate either view. What is certain, however, is that dollar cost averaging does not produce bad results, and it brings people to the table who might not otherwise be investing. Plain English Dollar cost averaging is an investment strategy whereby an investor systematically invests a predetermined amount on a regular basis. One of the single biggest excuses people give for not being in the stock market is that they don't have enough extra money to invest. However, if the average investor waited until he or she had hundreds of thousands of dollars to invest before becoming active, the American stock market would be a very different place than it is. People with large portfolios are rarely those who have received a lump sum equal to the current size of their portfolios. Rather, these large portfolios were created by making systematic smaller investments. Regardless of the potential for optimal return with this strategy, the primary benefit of dollar cost averaging is to get people to invest relatively small amounts, which are intended to add up to a larger amount. Again, this strategy really works. The example of the $10,000 goal used in Lesson 11, "How to Pick Stocks," was not the result of a $10,000 initial investment, but rather the accumulation of systematic investing over a year's time. By the way, dollar cost averaging is not guaranteed to produce higher stock prices for people who choose to invest this way. Should you be concerned about the price you will pay for stock as it