Dollar cost averaging

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Dollar cost averaging is an investing technique intended to reduce exposure to risk associated with making a single large purchase. The idea is simple: spend a fixed dollar amount at regular intervals (e.g., monthly) on a particular investment or portfolio/part of a portfolio, regardless of the share price. In this way, more shares are purchased when prices are low and fewer shares are bought when prices are high. This in turns lessens long-term risk (e.g., investing a large amount in a single investment at the wrong time). Since in general the market goes up, this is widely considered a safe investing strategy over the long term, although other factors can of course come into play.

Also referred to as constant dollar plan (in the United Kingdom, it is known as pound-cost averaging).

[edit] References

• Constantinides, George M. (June 1979). "A Note on the Suboptimality of Dollar-Cost Averaging as an Investment Policy" (PDF). Journal of Financial and Quantitative Analysis 14 (2): 443-50. Retrieved on 2006-06-22. 
• Middleton, Timothy (2005-01-04). The costly myth of dollar-cost averaging. MSN Money. Retrieved on 2006-06-22.

• The Intelligent Investor: revised 1972 edition Benjamin Graham, Jason Zweig. Collins, 2003. ISBN 0-06-055566-1

• Investopedia