Wednesday, July 9, 2008

What is Dollar Cost Averaging?

Today, we talk about Dollar Cost Averaging but What is It?
Instead of investing assets in a lump sum, the investor works his way into a position by slowly buying smaller amounts over a longer period of time.
This spreads the cost basis out over several years, providing insulation against changes in market price.
So i've listed 3 simple senario:
A- The Ever Increasing PatternPhotobucket
B- The Down & Up PatternPhotobucket
C- The Decline And Pattern to Original Price PatternPhotobucket

Setting Up Your Own Dollar Cost Averaging PlanIn order to begin a dollar cost averaging plan, you must do three things:

  1. Decide exactly how much money you can invest each month. Make certain that you are financially capable of keeping the amount consistent; otherwise the plan will not be as effective.
  • Select an investment (index funds are particularly appropriate, but we will get to that in a moment) that you want to hold for the long term, preferably five to ten years or longer.
  • At regular intervals (weekly, monthly or quarterly works best), invest that money into the security you’ve chosen. If your broker offers it, set up an automatic withdrawal plan so the process becomes automated.
  • The Benefits of Dollar Cost Averaging


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