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CarlWohlforth Original500© Member 
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Dollar cost averaging is a great way to buy stocks or mutual funds. Anybody who invests in a 401K at work is dollar cost averaging. The idea is to invest a certain dollar amount on regular intervals. The gain is that as the price changes you buy more shares when the price is higher and fewer shares when the price is lower. Have you ever looked at a graph of stock or mutual fund prices? They all have one thing in common. The graph does a lot of zigging and zagging. I have never seen a graph that was a straight line (up or down) over a long period of time. Dollar cost averaging is an excellent way to start investing. It removes the risk that you invest all your money at the highest price. It allows you to build a significant position slowly over time. Mutual funds are perfect for dollar cost averaging. They spread the risk among many stocks. If you are buying your first individual stock dollar cost averaging is a good idea. Pick a stock you think will do well in the long run. Some companies offer dividend reinvestment plans which allow you to send in additional investments every month. These are great because you usually don't have to pay any broker fees. I have been doing this with MMM for many years. I have them take $150 from my checking account each month. Last edited on 12:57 am by CarlWohlforth |
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24HourNut Administrator  Body pillows rock!
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I'm a big fan of automated withdrawals from your account and dollar cost averaging. The reason I like dollar cost averaging is one that is perhaps even more important than the typical reasons for liking it, and that is, it helps take the emotion out of things. You are always a buyer so you don't care how the market is doing. If you respect the long-term principles of investing and are in the asset types that are volatile (such as stocks) for the right reasons (that portion is set aside for the long-term) always buying that asset type helps remove the temptation to make emotions rule you. Many people sell at the wrong time (market has been bad for a long time) and buy at the wrong time (hey, the market is doing great). This is due to market-guessing based upon emotion instead of sticking to the plan and not being in stocks unless you have a few decades, ideally. Dollar cost averaging + automatic payments = less emotion, greater chance of sticking to the Plan, and more conditioning to treat paying your future self as important as any other bill.
 The best human beings start good new topics and vote on the better posts. |
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1jester Pioneer100© Member  Pilgrim Sojourner
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I'm a fan of dollar cost averaging. I've dumped every available dollar over the past few years into coins! 
Thou shalt love the Lord thy God with all thy heart, and with all thy soul, and with all thy mind. This is the first and great commandment. And the second is like unto it, Thou shalt love thy neighbour as thyself. -Matthew 22:37-39 |
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Mercurynut Guest
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I have been dollar cost averaging for years into mutual funds both stock and bond (80-20 split) as well as hard assets like gold, silver and a reit. It works! Everyone should be doing it with their "core" holdings.
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MrPaseo Original500© Member  Peace Protector
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Great points on Dollar Cost Averaging, I especially like the thought of taking the emotion out of investing. I'm thinking about establishing an account where I set up an allotment that is used only for investments. This way I can have the investments scheduled to automatically be withdrawn by the investment company (Mutual Funds as of yet). Thanks, Ray
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24HourNut Administrator Body pillows rock!
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An emotionless, automated, robotic Plan based upon the time-proven sound principles of long-term investing is what almost everyone should do. So, when there is a market crash, like the one in 2000, you are not shaken. Why would you be? You only have a significant amount of money in stocks because you are a long-term buyer of them. A crash should not bother you. In fact, you might even like it. Ideally you will be neutral about it, and the kind of Plan I describe is the best chance of keeping the emotion out of it and staying neutral. It's when people are NOT neutral that they make bad decisions. For example, being heavy on stocks in the late 90s even though that money was not long-term, or not being diversified and being too heavy in tech because it was not, and then when the market crashed, selling stocks instead of continuing to buy. Emotions make you sell at the wrong time, usually. You really should only be SELLING to rebalance once or twice a year because one particular asset type has grown too much and you need to shave it off and distribute it to keep the asset mix appropriate for your Plan. It were the people operating outside of a disciplined plan who got burnt in the crash. They abandoned the long-term principles and were all about shorter-term gains. That is why people getting ready to retire got burnt. They should not have had important money they were going to need in less than a decade in stocks to begin with.
The best human beings start good new topics and vote on the better posts. |
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bjork73 Pioneer100© Member  Official Forum (T)reasoner
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24HN are you saying that those within 10 years of retirement should have no stock holdings? I have heard that with people living longer that even those AT retirement should have anywhere from 10 to 25 percent remaining in stocks.
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24HourNut Administrator Body pillows rock!
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Hi Bjork, glad to see you around! No, I am saying that MONEY that will be NEEDED for USE in less than 10 years should either not be in stocks or just in some stocks, depending upon your risk tolerance or other assets. In other words, if you own a few homes you can liquidate whenever you want, then you can afford to take on a little more risk with money that will be used in less than 10 years. So, maybe you can be 25% stocks let's say with THAT money. Money targetted for AFTER that can be heavier in stocks or all stocks depending. See, it's all depending, which is why it is just a general rule of thumb. If you don't have any other assets worth talking about and will need to use that money, and that money is very important because it will be used by you to live on, you probably do not want to put any of it in stocks if it will be spent within 10 years. It makes it easier to categorize things in the short, medium, and long-term - with long-term being over 10 years and suitable for heavy or all stocks. That's what I've found for the people I have helped, including myself. The total asset picture needs to be taken into account, as well as expected spending or negatives (weddings, moving, loss of job, etc.)
The best human beings start good new topics and vote on the better posts. |
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bjork73 Pioneer100© Member Official Forum (T)reasoner
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Got it  I thought that's where you were going; I just wasn't sure...
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