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Build Your Portfolio through Dollar Cost Averaging
by Laura Maery Gold and Dan Post from Boot Your Broker!
It's a subject that fascinates most investment advisors, but it is, in reality, just common sense. It's the fact that the phenomenon called dollar cost averaging works so well, so consistently, that makes it a subject of endless discussion.
Here's how it works: Each period-say, once a week-you invest the same amount of money-say, that same $100. Over time, say the financiers who track such things, you will make more money with this method than if you try to time your investments to correspond with market highs and lows.
The principle works for a couple of reasons. First, for the real-life reason that if you're a regular investor, you're not waffling endlessly over every investment decision, leaving your money collecting dust in passbook savings. The other reason it works is the theoretical one: that $100 worth of cheap securities is a good deal, and $100 worth of expensive securities is a bad deal. When the market drops, you get more of a good deal; when it rises, you buy less of a bad deal-all with the same $100.
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