Start Investing: Make It a Habit
Dollar-cost averaging is a smart investing strategy.
You want a home of your own, an education for your kids, a comfortable retirement someday and a little fun along the way. These are the dreams we all seem to be born with. To achieve them, we must become investors.
Practice Dollar-Cost Averaging
Dollar-cost averaging is a reliable way to smooth out the ups and downs of the stock market. You invest a fixed amount on a regular schedule: $25 a month, $50 a month, $500 a month — whatever fits your budget. Your fixed number of dollars will automatically buy more shares when prices are low than they will when prices are high. As a result, the average purchase price of your stock will be lower than the average of the market prices over the same length of time.
Dollar-cost averaging won't automatically produce a profit. But by investing on a regular schedule and sticking with your plan, you're virtually guaranteed to do better in a generally rising market than investors who try to sell at the top and buy at the bottom. History shows that the odds are strongly against that kind of timing.
DRIP investing lets you buy small amounts of stock on a regular basis without going broke paying the commissions. A growing number of companies are willing to sell shares directly to investors, thus allowing you to bypass brokers' commissions. These programs also make you eligible to participate in the company's dividend reinvestment plan, or DRIP. For a list of companies offering such plans, check Directinvesting.com.
No-Load Mutual Funds
No-load mutual funds are ideally suited for dollar-cost averaging. There are no sales commissions when you buy, and you can invest a small (or large) amount of money on a regular schedule, even if your dollars buy fractional shares. Funds will let you have money transferred regularly from a bank account.