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 ?
Besides, systematic investment plans (SIPs) continued to show an upward trend with contribution of Rs 7,985 crore last month as against Rs 7,727 crore in September.
Systematic investment plans (SIPs) by mutual funds can make the process easy and effortless.
The number of client accounts as on 30th September 2018, increased to 1,40,564 of which 40,758 were investing via Systematic Investment Plans.
Investors may also choose to invest by way of a lump sum basis or by way of systematic investment plans whereby the investment is done on a monthly basis, this route especially enables to develop a fiscal discipline for most investors.
The course work includes investment concepts like stocks, mutual funds, systematic investment plans, derivatives, technical analysis, and fundamental research among others.
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).
Rashesh Shah, Chairman and CEO of Edelweiss Group, agreed, and had a word of advice for the uninitiated: "The easiest thing for a retail investor is to invest through SIPs (systematic investment plans)." And, if you have the time and energy to search stocks, "go for B2C (business to consumer)", he added.
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.
Apart from the option of exchange traded funds (ETFs) and gold SIPs (systematic investment plans), one can also buy coins, bars from banks, jewellery shops and post offices.
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.

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