The numerous news headlines processed every day can cause an investor to be fearful and make misguided decisions with their assets. The good news is that there is a calm and sensible investment approach called dollar-cost averaging (DCA) that can help mitigate the angst.
- DCA is a long-term strategy that involves investing a fixed-dollar amount into a mutual fund account (for example) at regular intervals. It takes advantage of the cyclical nature of the stock market and allows you to focus on long-term growth and ignore short-term market conditions.
- Since you always invest the same amount, you purchase more shares when the price is low and fewer shares when the price is high. DCA’s premise is that your average cost per share may be less than your average price per share, thus reducing your investment risk over time.
- DCA also allows for small investments that, when done consistently over time, can grow into big savings.
Automatic investing from your bank account is an easy way to make saving a habit while bringing some peace to your life.
Dollar-cost averaging is a plan of continuous investment in securities regardless of their inconsistent prices. Of course, you must consider your financial ability to continually purchase shares. As with all investment methods, there is no performance guarantee.
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