Thursday, February 24, 2005
Term of the Day
Dollar Cost Averaging.
Basically, you spend a fixed amount of money on a certain company's stock at regular intervals (monthly, bi weekly, etc.). When the stock price is down, you buy more shares than you would when the stock is high. Over time, the average cost per share shrinks, giving you a large investment for the smallest possible cost (aside from riskier schemes).
Many long term and conservative investors adhere to this policy, as it is the market's nature to grow, and dollar cost averaging is the best way to grow your portfolio, making your money easily work for you. Another key benefit is that it's unnecessary to predict the stock's lowest point (and best entrance point).
If you participate in a 401(k) or 403(b) plan, you are already seeing the benefits of this scheme.
Basically, you spend a fixed amount of money on a certain company's stock at regular intervals (monthly, bi weekly, etc.). When the stock price is down, you buy more shares than you would when the stock is high. Over time, the average cost per share shrinks, giving you a large investment for the smallest possible cost (aside from riskier schemes).
Many long term and conservative investors adhere to this policy, as it is the market's nature to grow, and dollar cost averaging is the best way to grow your portfolio, making your money easily work for you. Another key benefit is that it's unnecessary to predict the stock's lowest point (and best entrance point).
If you participate in a 401(k) or 403(b) plan, you are already seeing the benefits of this scheme.
