Dollar cost averaging
The idea of dollar cost averaging was actually one of the things I learned about money back in high school (or maybe it was junior high, at any rate it’s been a long time). It’s always appealed to me as a way to take the worry out of investing. Many people make the classic mistake of buy high, sell low, but with dollar cost averaging you don’t have to worry about making a large investment when prices are high.
The way it works is that you buy the same dollar amount of shares of your chosen investments regardless of the market. For examples, suppose you’ve decided that you will invest $100 on the 15th of every month. When the 15th comes along, you buy as planned, without trying to decide if it is the “right” time to buy or not. Over time, the average cost per share will likely be lower than if you had bought in one lump sum or tried to time the market. This means that the risk of you paying too much for a particular investment is reduced. Of course the downside is that your earnings may be slightly reduced as well, but I think the benefits outweigh the downside.
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