What is Dollar Cost Averaging, and why is it important?
Updated: Jun 27
Hi all! You may have heard of the money concept 'buy low, sell high,' and that is a great idea, but, unless you spend a lot of time watching and researching the stock market, it can be hard to do. In the industry, they sometimes call that trying to 'time the market,' which means trying to invest when the price is low, and aiming to sell when the price is high. But since no one has a crystal ball, especially for the first-time investor, it's completely unrealistic.
The concept of 'dollar cost averaging,' is a way NOT to time the market, and to trust that, over time, the benefit of just being invested in stocks will outweigh the marginal potential benefit of 'buying low, selling high.' 'Dollar cost averaging' means choosing a specific dollar amount to invest in the market regularly, not trying to time it, but just having a schedule of investing. Once a week, once a month, four times a year, etc.
This idea allows an investor to take some of the emotionality out of her investing, and it has proven to be a useful strategy for long-term wealth building.
If you have been keeping a digit tally, and/or you know your budget, can you put some thought into how much you might be able to start investing regularly, say monthly? Let me know in the comments if this sounds like a good idea to you! And, as always, thanks for reading this.
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