Constant Dollar Plan

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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.

constant dollar plan

A formula plan for investing in which a constant dollar amount is kept in stocks, with other investments in bonds or short-term securities. Essentially, this plan forces the investor to sell stocks in rising markets and purchase them in falling markets.

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