Dollar-cost averaging is a technique used to invest in stocks or other securities at fixed intervals. This strategy involves investing a fixed sum of money into the market regularly instead of trying to time it perfectly by buying all your shares at once when prices are low. Dollar-cost averaging is an effective way for investors with limited funds to purchase securities without compromising their long-term goals.
Although dollar-cost averaging is often recommended for the average investor, it does have its drawbacks. Many financial institutions are encouraging this investment strategy due to reports that show that certain financial moves around the turn of the century resulted in customers having substantial gains.
What is dollar-cost averaging, and why should you use it
Dollar-cost averaging is an investment technique that involves investing a fixed sum of money into a security or securities at fixed intervals. Doing this reduces the effects that sporadic changes unrelated to the underlying security might have on the price. Over time, this can help lead to financial freedom and protect you from making rash investment decisions.
This strategy is an excellent way for investors who have limited funds available to purchase securities without compromising their long-term goals. However, it’s important to note that dollar-cost averaging has its drawbacks: it may not be as effective for investors looking to make a quick profit.
Overall, this investment strategy is an excellent way for investors to make the most of their money. Although dollar-cost averaging is often recommended for the average investor, it does have its detractors.
When dollar-cost averaging makes the most sense
Now is an excellent time to dollar-cost average into the market. Because the market has been on such a downward trend, dollar-cost averaging into the market right now will allow you to buy at a low price. It can be easy to panic and pull out of the market during these times, but dollar-cost averaging into the market can help you avoid making rash decisions.
As with any investment technique, dollar-cost averaging works best over a long period. If you dollar-cost average into your investments for ten years rather than five years, you’ll likely see better results. Because dollar-cost averaging reduces the effects of sporadic changes in the market, this technique can decrease your chances of buying at a high price and selling at a low price.
How to get started
1. Determine how much money you want to invest
2. Choose the security or securities you want to invest in
3. Decide on the interval at which you will make your investments
4. Set up your account with a broker or financial institution. I use M1 Finance and recommend it to others.
5. Deposit money into your account regularly
6. Let the magic of dollar-cost averaging work its wonders!
We Love It
Dollar-cost averaging is a simple and effective strategy for investing in the stock market. This investment technique involves making regular deposits into your account at set intervals, rather than trying to time when you should buy or sell stocks. This strategy can help lead to financial freedom by protecting your investments from sudden changes in the market and ensuring that you’re constantly invested at an even rate.
See it in action! Every weekend is our dividend and growth portfolio updates! We’re dollar-cost averaging with $25 weekly contributions with each of these portfolios. Watch the dividend portfolio videos here and the growth videos here. But before you do, don’t forget to get started with opening your M1 Finance or Webull account for free cash or stocks. And check out more helpful content in our blog here.
