Dollar Cost Averaging
Dollar-cost averaging is
an investment method in which you put the same amount of money into an investment at regular intervals, such as every month. As the market price of the investment rises and falls, you end up buying more shares when prices are low and fewer shares when prices are high. This way, you don't have to track the market and time your purchases (that is, buy low, sell high)
Dollar cost averaging is an effective way way to purchases shares especially for mutual funds. Mutual Fund companies have programs for investors to purchase X amount of dollars of that mutual fund per month. Some mutual funds wave their initial minimun purchase requirement. Dollar cost averaging is not a conservative or risky way of investing it is the smart of investing.
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Select Dollar Cost Averaging:
1. Take stock or Mutual Fund and set a price that you think it will be at the end of the year. (Target Price)
2. From your Target Price determine a Limit Price or the maximum price you would be willing to pay for the year. I suggest that The Limit price should be 7-15% below the Target Price
3. During the first two weeks of the year one should observe their stock. This time period is to set your target and limit price and NOT to buy additional shares because of the traditional turbulence during this time.
4. Determine the amount of money you would use to tradition dollar cost average. Divide that number by twelve if you normally dollar cost average monthly. For example you plan to invest $1200 for the year you would be investing monthly $100.
5. With Select Dollar cost averaging group three months of contributions together. You should have $300 representing one quarter. Take your normal dollar cost average period and divide it by two. This will represent the new periods you will work with. So instead of monthly contributions one has the option to invest bi-monthly. This will increase your chances of maximizing your returns from three to six times to invest.
6. Use your numbers from your Target Price and Limit Price to see what are good deals during the six times you �set-up� to invest during the quarter. However if your if the price never goes into your acceptable range after two months or 4 periods then you should adjust your Limit accordingly. It is perfectly all right to roll some of you money toward the next quarter.
8. After each quarter or when you think it is necessary reevaluate your Target and Limit Price
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