dollar-cost averaging

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Dollar-Cost Averaging

An investment strategy in which one makes investments in the same dollar amount at regular times. For example, one may buy $1,000 in Stock A every month, regardless of Stock A's current price. Because this means one buys fewer shares when the price is high and more when the price is low, dollar-cost averaging aims to reduce the average cost of the shares one buys. This increases the profit per share when one sells the stock. Dollar cost averaging is most common with shares of a mutual fund or a retirement plan. It is also called a constant dollar plan.

dollar-cost averaging

Investment of a fixed amount of money at regular intervals, usually each month. This process results in the purchase of extra shares during market downturns and fewer shares during market upturns. Dollar-cost averaging is based on the belief that the market or a particular stock will rise in price over the long term and that it is not worthwhile (or even possible) to identify intermediate highs and lows. Also called averaging.
What types of investors should use dollar-cost averaging?

When asked what the market was going to do, J. P. Morgan reportedly said, "It will fluctuate." Morgan was right! This concept refers to putting a fixed amount of money into securities periodically. In so doing, one's average price per share is lower than the mean average price during the holding period. This is basic math: $100 buys 10 shares of a stock at $10, and 5 shares at $20 when the market is higher. The mean average price is $15. But the investor owns 15 shares and paid just $200 for an average price per share of just $13.33. TIP: A good approach for smaller investors just getting started, and also for IRAs. It works particularly well with diversified mutual funds.

Thomas J. McAllister, CFP, McAllister Financial Planning, Carmel, IN
References in periodicals archive ?
One way of ensuring this is systematic investment plans (SIPs), in which a person can invest in a disciplined manner at regular intervals without being too adventurous.
Systematic investment plans do not ensure a profit nor guarantee against a loss in declining markets.
MOST MUTUAL fund investors are aware of systematic investment plans or SIPs.
Lack of initial public offerings and a dearth of knowledge on systematic investment plans (like mutual fund schemes) are cited as major reasons for low volumes on the bourse.
Anthony DeFranco and Nelson Couto serve the needs of individuals, corporations, partnerships, trusts, estates and foundations providing traditional brokerage accounts, fee-based managed accounts, private money management, individual and business retirement plans, education planning, stocks, bonds, mutual funds, life, disability and long-term-care insurance, variable and fixed annuities, multi-generational estate planning, comprehensive tax reporting, account consolidation and systematic investment plans.
Under the terms of the agreement, Salama will offer Dubai Bank customers a wide range of Sharia-compliant unit-linked funds through lumpsum investments as well as systematic investment plans.
For those with systematic investment plans, the current market downturn is an advantage.
Systematic investment plans do not guarantee a profit or protect against a loss in a declining market.
Systematic investment plans are a good way to ensure regular long-term investing.
For instance, one can look at starting systematic investment plans, or SIPs, in equity- linked savings schemes, or ELSS, of mutual funds," says Ashish Shanker, head, investment advisory, Motilal Oswal Private Wealth Management.
Direct investments into Class B and C shares are permitted under systematic investment plans only.
Summary: Most mutual fund investors are aware of systematic investment plans or

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