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All investors face the same question: Is this the right time to buy? Do market fluctuations have you standing on the sidelines? Are you having trouble deciding when is the "right" time to invest?
Rather than agonizing over the answer, you may want to consider an investment strategy that eliminates trying to outguess the market and takes advantage of its highs and lows — dollar-cost averaging.
What is dollar-cost averaging?
Simply put, dollar-cost averaging is committing a fixed amount of money at regular intervals to an investment such as a mutual fund. As the market moves, you buy shares at different prices — some high, some low and somewhere in between. You keep investing the same dollar amount every month, or bi-monthly, and you stay with it over time. That's the disciplined strategy.
Take a look at the following example:
|Price Per Share||Shares Purch-
|Total||$1,200||Avg price per share $9.00||142.18
Avg cost per share $8.44
Since you invest the same dollar amount each period, you automatically purchase more shares when prices are low and fewer shares when prices are high. This means that over the entire purchase period, your average cost per share may be lower than the investment's average price per share. And you may have used market fluctuations to your investment advantage.
Successful dollar-cost averaging requires that you stick to your plan, regardless of what the market does. You should consider selecting an amount that is consistent with your financial means so that you can continue to purchase shares even through periods of fluctuating price levels.
The above table is for illustrative purposes only and does not attempt to predict actual results of any particular investment.
Investing regular amounts steadily over time (dollar-cost averaging) may lower your average per-share cost. Periodic investment programs cannot guarantee a profit or protect against a loss in a declining market. Dollar-cost averaging is a long-term strategy that involves continuous investing, regardless of fluctuating price levels, and, as a result, you should consider your financial ability to continue to invest during periods of fluctuating price levels.