The Advantages of Dollar Cost Averaging

dollar cost averagingDollar cost averaging might sound like a great way to make the most of a fast-food restaurants dollar menu. On the contrary, its actually a simple yet phenomenal tool for your investments. Dollar cost averaging is a method of buying a fixed dollar amount of a particular investment on a regular schedule. This means when prices are low, you buy more shares, in turn fewer shares are purchased when prices are higher.

When utilizing dollar cost averaging, you begin with a predetermined amount of money to use when purchasing your investments according to a schedule established in advance. This means, if you have $200 to invest, there are periods in which you may be buying more or less of the particular investment than you did during the previous period based on its market price at that time.

The theory behind dollar cost averaging is that over the course of time your investments are averaging out, thus resulting in paying an average amount for your stocks. This average price will result in avoiding the risks of buying too much of a stock when the prices are high and utilize affordability to purchase more when the price drops.

What sets dollar cost averaging apart from alternative investing methods are the advantages it offers to inexperienced investors or those with less to set aside for their investments. Dollar cost averaging allows for an investor to consistently build their portfolio without breaking the bank or needing a large lump sum to begin with. This means that even if all you have is $50 a month to invest with, you can still get started and begin your road to preparing for your future and retirement. If you chose to have the process automated, you can rest easy knowing that every period your portfolio will continue to grow. Portfolios that utilize dollar cost averaging have the ability to grow to a substantial amount with consistent investing and patience.

Additional benefits rest in the peace of mind for those who are hesitant to place their future in a market with a history of multiple crashes. By investing in smaller, consistent portions, new investors are less at risk for a large loss should there be a market crash or drastic drop in their investments worth. 

When thinking of retirement, investing, and preparing for the future, it is rare that money is no option. Dollar cost averaging is an uncomplicated manageable way to build your portfolio without breaking the bank or opening the door to unnecessary risk. Even the tightest budgets can find relief and can begin to build their portfolio through the consistent use of dollar cost averaging.