In today’s rabbit-fast world, it pays to remember that the tortoise won the race. For investors, dollar-cost averaging – a slow and steady investment plan – can be a winning strategy.
With dollar-cost averaging, you invest a set amount of money on a regular basis, typically in a mutual fund. The idea of investing a fixed dollar amount at regular intervals is simple, but the benefits add up. Here are some advantages offered by dollar-cost averaging:
* Lower average cost. An investing schedule based on a fixed dollar amount lets you buy more shares when prices are low and fewer shares when prices are high. This averaging effect makes the per-share cost of your investment lower than the average market price per share for the same time period.
* Expanded investment options. Coming up with the minimum that some mutual funds typically require to open an account can be difficult. But many funds will waive the minimum initial investment if you sign up for an automatic monthly investment plan.
* Decreased market timing risk. Committing to a plan of dollar-cost averaging takes the guesswork out of when to invest. Once you’ve decided how much to invest and how often, you make purchases regardless of the direction of the market.
* Disciplined investment. Fixed, automatic payments on a regular schedule provide an easy yet disciplined way to finance your investment goals. Because the amount you invest stays constant, you can more easily budget for it.
Dollar-cost averaging is a disciplined investment strategy. It doesn’t eliminate the need to review your investments periodically to make sure that they still meet your expectations and your risk tolerance.
Measured and consistent investing offers long-term benefits. And, like the tortoise, your portfolio can end up the winner.