Investing Secret #2, Five Steps to Dollar Cost Averaging
Almost everyone knows about mutual funds these days
. There are actually thousands of different fund types available, one (or more) for just about any investor.
You can start with a small investment, but by adding to it each and every month, your investments grow in good and bad markets. Over time this not only reduces your risk of buying with the price is too high, but also allows to steady increase your investment holding with just a fixed monthly investment.
What dollar cost averaging does in take the emotions and guesswork out of investing while putting the markets ups and downs to work for you.
Here's how:
1. With many mutual funds you can invest very little to start. As little as $25/month, but many mutual funds have the lower limits set at $250.00 or more for a monthly deduction from your checking account to your mutual fund account.
2. Invest a fixed amount of money in the market at regular intervals (usually every payday or every month) regardless of whether the market is up or down.
3. Most mutual funds will require you to set up an automatic deduction from a checking or savings account. This is a good thing, it makes investing automatic and you can soon stop following your funds performance every day. Many experts say it is best to only look at your mutual funds performance once a quarter. If necessary you can move money around to keep your investments on track.
4. Start with participation in a in a 401(k) or 403(b) retirement plan. These and other defined contribution plans use dollar cost averaging to build your retirement fund.
5. Use a dollar cost averaging calculator on-line to see how your monthly investments will grow into the financial security your family needs.
Do you know anyone who stop investing when the stock market climbs, fearing they will overpay? Or perhaps you have been someone who would sell your investments when the market drops or retreat to the sidelines to simply avoid risks.With this secret in your game plan you avoid mistakes and reduce your risk.
Here's how dollar-cost averaging could work. Suppose you invest $100 a month in a mutual fund. At the end of six months, you own 34 shares that cost $600. But the key is your average cost was $17.65 per share ($600 divided by 34 shares).
When the share price was. You purchased.
$25.00 4 shares
$20.00 5 shares
$12.50 8 shares
$14.29 7 shares
$16.67 6 shares
$25.00 4 shares
Over six months, your average price per share was $18.91. You purchased 34 shares for $600. Your average cost per share was $17.65.
Now you have started creating a plan for achieving financial freedom, based on a steady, consistent investment, where when the price of a mutual goes up, you buy fewer shares and when the prices fall you buy more shares. Just remember the advise of
Investing Secret #2, Five Steps to Dollar Cost Averaging
By: Floyd Saunders
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