Dollar Cost Averaging
Usually, I like to stand out, not fit in. But there is an exception.
Dollar cost averaging is the one scenario where I like to be average.
(click on the bold-faced vocab words:))
Remember how I have 10% of my income automatically invested. That’s dollar cost averaging.
Each paycheck is the same amount (but I would like it to be more), therefore the amount invested is consistent.
The # of mutual fund shares I buy is determined by the price of the shares and the investment amount.
Since the investment amount is consistent, I automatically buy more shares when the price is low and less shares when the price is high.
It’s really what I’m supposed to do anyway. With this system there is no room for human error. I don’t have an option to get too excited and buy more of the rising stock. Whew, dodged that bullet.
I approve of being average, only when dollar cost averaging.
(Originally published on Amanda Stanhaus’s financial literacy blog: XO, Bettie.)