Because investments can go up and down in value over a short period of time, this can make most investors nervous. Some investors will try to figure out the best time to buy an investment (this is commonly referred to as “timing the market”), then worry that they bought it too early or too late. A better investment strategy is Dollar Cost Averaging.
Dollar Cost Averaging is a wealth building strategy that involves investing a fixed amount of money at regular intervals over a long period of time.
The basic principle of Dollar Cost Averaging is simple:
You invest the same amount of money regularly, regardless of the market.
For example, you commit to invest $100 each month in shares of XZY Co. Then you simply buy $100 worth of shares each month. It’s that simple. When XYZ Co is doing well, the share price rises, so you can’t buy as many shares that month. Similarly, when the share price falls, your $100 buys you more shares that month. Either way, you’re building your asset base.
You follow a plan of routine investing, regardless of what is happening in the stock market. It fits perfectly with payroll deduction plans offered by employers, or periodic automatic transfers from your bank account.
Dollar Cost Averaging doesn’t guarantee success, but it takes the emotion out of investing and makes it a habit. It also allows you to start investing now, rather than procrastinating until you learn more about the market.
As the saying goes: