Ever since the beginning of stock trading, investors have looked for signs to indicate when stock prices will rise or fall.
So far, no one has come up with a foolproof method for consistently predicting market upswings or downturns. Dollar Cost Averaging is an investing strategy that can help reduce the risk of bad timing and take the emotion out of it.
Eliminating the guesswork
Dollar Cost Averaging is the strategy of investing a fixed amount of money at regular intervals. Let’s say you decide to invest $100 a month in a particular portfolio until you retire. You make your $100 investment whether the price per share is up or down. By doing so, you avoid trying to “time the market” – the attempt to invest when market conditions appear favorable. It may not seem to make sense to invest during an unfavorable market; however, since you’re investing a fixed amount, your money buys more shares when prices are low and fewer shares when prices are high.
These are hypothetical examples for illustrative purposes and do not represent the results of any investment plan in any portfolio. Your investment results will differ. Any investment involves risk, including the possible loss of the principal amount invested.
Dollar cost averaging won’t completely protect your portfolio from a loss if the market takes a plunge. But it may help reduce any losses and leave you in a good position to benefit from a recovery since you’ll still be fully invested.
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