Dollar Cost Averaging
Dollar Cost Averaging is a technique commonly associated with retirement funds or mutual fund investing. The reason is because most employees sign up for regular paycheck deductions to accumulate funds in investing accounts such as a 401K or IRA. Investing in mutual funds or individual stocks in a retirement account on a weekly, semi-monthly or monthly basis is a way to dollar cost average.
Simply, dollar cost averaging means investing a fixed amount of money on a regular basis into an investment over a long period of time. While the security price (stock or mutual fund price) is low, the amount you invest will buy more shares, and when the security price is high, the same dollar amount will purchase a lower number of shares. The end result is a lower cost basis in turn producing a greater profit margin.
Next time you invest, instead of purchasing a large amount of shares, try purchasing a smaller amount over several transactions to reduce your risk, lower your cost basis, and ultimately increase your profits!