(ThePennyWatcher.com) – Learning the basics of investing is important, and one must understand that you don’t need to be a wall street executive that works numbers all day.
As you can imagine, there are some basic terms and ways to deploy your money that will give you the necessary confidence to start looking closer at investing as a legitimate part of your financial strategy.
You may have heard of dollar costs averaging? But what is its exactly, and how difficult is it to implement into your current strategy.
What is Dollar-Cost Averaging?
In simplest terms DCA is a way to continually invest capitol on more of a routine basis as to not worry about every dip that will undoubtedly occur in the market.
If your looking at a specific set of mutual funds or stocks, you can set a specific amount as well as a schedule to invest.
Set Your Schedule: It could be weekly, monthly, or quarterly. Staying in the market at that specific price point is the key.
Pick Your Investment: As mentioned, stocks, bonds, or even ETF’s are a good way to get involved in this strategy.
Invest the Same Amount: A fixed amount of money regardless if the price is the idea, so as to almost be a set it and forget it strategy. Over time as you buy more shares when the price is low and fewer shares when the price is high, this allows it to “average” out over time.
Benefits of Dollar-Cost Averaging:
One of the biggest pitfalls folks get themselves into is when they allow their emotions to get involved when buying into the market. Now, this may work out some times, but with dollar cost averaging you camn eliminate this and just stick to the plan.
DCA creates a disciplined approach to investing, encouraging you to invest regularly and build wealth over time.
It’s all about the long game!
And we like to make it clear that CDA is perfect for Beginners as It doesn’t require expertise in market timing. Not so intimidating is it!
Is DCA Right for You?
Consider the following circumstances when looking at DCA:
- Time Horizon: DCA is best suited for long-term investments. The longer your investment timeframe, the greater the potential benefits of seeing a great return!
- Market Fluctuations: While DCA doesn’t guarantee profits, you might miss out on some potential gains if the market consistently rises, but again this is the nominal risk you are willing to bet on.
- Opportunity Cost: Investing a lump sum could potentially yield higher returns if the market goes up steadily. However, DCA offers a more balanced approach.
So you can see how rather simple of a concept DCA is. Do your own research, and consult with a fiduciary that will have your best interest in mind when advising.
Best of luck, and cheers to your financial health and wealth!
