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sabrinamariI've just been asked to explain dollar cost investing---a perfectly reasonable question with a critically important answer!
Here's what it is:
Dollar cost investing (also called dollar-cost averaging), generally means 'making regularly scheduled purchases of stocks or bonds'.
Usually it's done on auto-pilot. For example, I set up a series of automatic mutual fund purchases that come through my checking account on or around the 16th of every month. For one fund, that purchase amount is really modest: $50. But because I buy the fund online directly from the fund management group, and because I've set up automatic regular monthly payments, it's totally free. The fund management company doesn't charge me anything to do this.
Why is this a good idea?
1. Some months, the fund price is really low on the 16th, and some months it's a little higher. But over the long haul, the price will be lower often enough to allow me to buy more fund shares for less money than if I just made one big purchase at any given time.
So dollar-cost investing is a way of making sure that over time, I get more fund shares for less money.
2. Because I'm making an automatic purchase, it goes through on time no matter what else is going on in my life. This ensures that I make regular contributions to my long-term portfolio, no matter how distracted I might be during any given month.
3. I don't have access to a 401k or a 403b plan, so setting up my own little investment plan is a great alternative (it's also highly entertaining). Some of my automatic purchases go into my Vanguard Roth IRA and some don't. I'm mixing it up, since I can only put $5000 a year in my Roth and that's just not enough of a long-term investment for a 44-year-old woman to be making.
I like it on this planet, and I intend to stay for awhile. That means I am going to need enough money to pay my bills for a long, long time, I hope. So I've got to get crackin'.
4. Finally, in a bear market, dollar-cost investing in modest amounts is a great way for the not-yet-so-wealthy to take advantage of the 'blowout fire sales' that abound during these times. So although dollar costing is good in general, it's GREAT when the stock market is really tanking.
You can read more about it here:
http://en.wikipedia.org/wiki/Dollar_cost_averaging
Here's what it is:
Dollar cost investing (also called dollar-cost averaging), generally means 'making regularly scheduled purchases of stocks or bonds'.
Usually it's done on auto-pilot. For example, I set up a series of automatic mutual fund purchases that come through my checking account on or around the 16th of every month. For one fund, that purchase amount is really modest: $50. But because I buy the fund online directly from the fund management group, and because I've set up automatic regular monthly payments, it's totally free. The fund management company doesn't charge me anything to do this.
Why is this a good idea?
1. Some months, the fund price is really low on the 16th, and some months it's a little higher. But over the long haul, the price will be lower often enough to allow me to buy more fund shares for less money than if I just made one big purchase at any given time.
So dollar-cost investing is a way of making sure that over time, I get more fund shares for less money.
2. Because I'm making an automatic purchase, it goes through on time no matter what else is going on in my life. This ensures that I make regular contributions to my long-term portfolio, no matter how distracted I might be during any given month.
3. I don't have access to a 401k or a 403b plan, so setting up my own little investment plan is a great alternative (it's also highly entertaining). Some of my automatic purchases go into my Vanguard Roth IRA and some don't. I'm mixing it up, since I can only put $5000 a year in my Roth and that's just not enough of a long-term investment for a 44-year-old woman to be making.
I like it on this planet, and I intend to stay for awhile. That means I am going to need enough money to pay my bills for a long, long time, I hope. So I've got to get crackin'.
4. Finally, in a bear market, dollar-cost investing in modest amounts is a great way for the not-yet-so-wealthy to take advantage of the 'blowout fire sales' that abound during these times. So although dollar costing is good in general, it's GREAT when the stock market is really tanking.
You can read more about it here:
http://en.wikipedia.org/wiki/Dollar_cost_averaging
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You Are Giving Great Advice...
Date: 2008-10-01 04:53 pm (UTC)Re: You Are Giving Great Advice...
Date: 2008-10-01 05:46 pm (UTC)When my assets reach $200,000, I'm gonna be looking for a fee-only finacial advisor to teach me...uh, to help me manage my assets.