Most people don't have $10,000 to plop down on a stock or mutual fund investment at once. Putting a little bit of money down consistently to invest over the long term may be the best option. (It may be the only option.) Many people don't know the power of dollar cost averaging. The concept is simple but, because it is simple most people overlook it.
The general move of the stock market is up over the long term. If you buy now and keep the stock for a long time you should have a profit if the underlying company is profitable. This strategy is called buy and hold.
Of course the value of a stock usually goes up and down in the short term. The idea of dollar cost averaging is to buy a stock periodically over a long period of time based upon a set dollar to be spent rather then the number of stocks. It is an extension of the buy and hold, the difference is you are buying, holding and waiting a set period of time to buy again, repeat the buy, hold and wait, and repeat as long as you desire.
I have purchased stocks this way and set my period for once a month. I was able to spread the risk by buying stocks periodically. If the stock goes down in value you would purchase more stock and if the stock goes up in value you would purchase less stocks with the same dollar outlay. When the value of a share increases the shares you already own are more valuable. I wrote about purchasing individual stocks in one of my previous posts.
The general move of the stock market is up over the long term. If you buy now and keep the stock for a long time you should have a profit if the underlying company is profitable. This strategy is called buy and hold.
Of course the value of a stock usually goes up and down in the short term. The idea of dollar cost averaging is to buy a stock periodically over a long period of time based upon a set dollar to be spent rather then the number of stocks. It is an extension of the buy and hold, the difference is you are buying, holding and waiting a set period of time to buy again, repeat the buy, hold and wait, and repeat as long as you desire.
I have purchased stocks this way and set my period for once a month. I was able to spread the risk by buying stocks periodically. If the stock goes down in value you would purchase more stock and if the stock goes up in value you would purchase less stocks with the same dollar outlay. When the value of a share increases the shares you already own are more valuable. I wrote about purchasing individual stocks in one of my previous posts.
Example of Dollar Cost Averaging
