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Chapter 12. Managing Your Investments > Dollar Cost Averaging

Dollar Cost Averaging

Dollar cost averaging (DCA) allows you to systematically make investments. For those who prescribe to its concept, DCA is a disciplined way to save. Mathematically, DCA will result in a lower average cost than the average price of the investment during that period. This is because when the price is high, you buy less, and when the price is low, you buy more.

If it doesn't sound as if I'm too convinced, I'm not. I'm a true believer in asset allocation, but I have my doubts about DCA. I do believe in systematic investing—that's what you're doing with your 401(k) and any other regular savings program. But there is an ever-growing volume of data that suggests that DCA is no better than actively managing your portfolio and moving into and out of the market as conditions fluctuate and warrant. Table 12-3 shows how DCA works.


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