Newspaper article THE JOURNAL RECORD

Investing Doesn't Get Any Simpler Than Dollar Cost Averaging

Newspaper article THE JOURNAL RECORD

Investing Doesn't Get Any Simpler Than Dollar Cost Averaging

Article excerpt

The best way to make a fortune in the stock market is to buy low and sell high. In market parlance, that's called "timing."

But many individuals complain that they get their clocks "cleaned" when they try to time the market.

Groused one such investor, "The money other people make in the stock market comes directly out of my pocket. I always buy high and sell low."

Consequently, industry experts suggest that individuals forgo the urge to "time" the market and opt for a simpler and often more effective stock market strategy called "dollar cost averaging."

The description sounds intimidating, but in reality investing doesn't get any simpler than this. This is investing by automatic pilot _ the equivalent of contributing to an automatic savings plan at work.

You simply decide how much you can invest each month (or each quarter), what you want to invest in and, as the Nike commercials say, "just do it."

That's it. You often can have your investment automatically deducted from your paycheck or bank account so you don't even have to write the check. And you can, of course, stop funneling money into such plans at any time.

The simplicity of this strategy does two things. It helps the undisciplined save by taking the function out of their hands. And it can help investment returns by smoothing out the rough edges in the stock market.

There are two caveats:

This is a long-term strategy. It may work out for those who invest for only a year or two, but it is best suited to individuals who stick with a particular investment for five years or more.

Second, it is based on the assumption that, over a long period of time, stock prices will rise. History says that is so. But if it is not, dollar cost averaging _ and almost every other stock market strategy except short selling _ will fail.

But if you think stock prices will rise over the long haul, there's a compelling reason to consider this strategy. Namely, it works _ whether the market is going up, going down or just jumping around over the short term.

The best way to explain is to look at some examples.

Let's say you invest $300 a month for five months in a rising market. …

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