Articles From Experts
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Express Newsline Articles From Experts |
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Dollar cost averaging is the most effective way to make you pocketbook bigger. But how do you do it. Thou this is practiced by many successful investors already, very few of them realize they do. The principle of dollar cost averaging goes something like this: By investing a set amount of money every month in the same stock or mutual fund, a person reduces the risk of investing. This is because their money buys more shares when the market is down, and less shares when the market is up, evening out their investment cost basis. In other words, if you decide to put $100 a month into a mutual fund, and the fund trades for $15 per share this month, you would be able to buy 6 1/2 shares. Next month, if the mutual fund costs $20 per share, you would be able to buy 5 shares. Because you invested this way, you own approximately 11.5 shares and have reduced your risk because you paid, on average, $17.50 per share. Thus, in order to break even, your share price only has to be $17.50. No one can consistently time the market. Dollar cost averaging takes the guesswork out of trying and puts your money to work immediately. Interested in starting? Here's what you need to do: 1. Decide exactly how much money you can put aside every month. 2. Select a stock or mutual fund that you want to hold onto for the long term, at least five to ten years, preferably longer. 3. Every month, invest that money into the stock or mutual fund you decided on. That's all! Now all you have to do is forget about it. Your risk is reduced and you have begun saving for a better future. Just be sure to reinvest your dividends!
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