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 ?
Moreover, a sharp rise in systematic investment plans (SIPs) has promoted more sustainable growth for the industry as more people moved away from the concept of large lump sum investments.
And within the mutual fund, systematic investment plans (SIP) have been the biggest beneficiary of household savings.
Also, if you don't have the knowhow to directly invest in stocks, it is better to invest in equity mutual funds through systematic investment plans ( SIPs).
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.
While in the past, inflows would dry up completely in market downturns, today we have an estimated 8 million Systematic Investment Plans (SIPs) running, most of them being brought in by IFAs.
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.
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.
Systematic investment plans do not guarantee a profit or protect against a loss in a declining market.
In an earlier report by Zeebiz, we revealed how just by setting aside Rs 4,207 per month in Systematic Investment Plans (SIPs) via Mutual Funds can grow to be a handsome sum.
This is also the main reason for the popularity of systematic investment plans, or SIPs, which give investors the option of gaining from market while reducing the risk of volatility that is inherent in all financial markets.
One important silver lining for the equity markets is the growth of mutual funds, especially the rise in the number of retail investors using systematic investment plans (SIPs).

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