|
julymoon.com
|
|
November 30, 2003 Dollar Cost Averaging by Marcel Chartier You will read in many materials supplied by investment service companies the value of dollar cost averaging. They are right, regular contributions while markets are going through economic cycles will lower your average cost and increase your percentage gain over time. Then you will, as I have, read articles that say : dollar cost averaging is not as good as buying at the low end of the cylce - also true. So what is an investor to do? Well it depends on who you are and how much you have to invest. It depends on the nature of your income. It depends on how much you are going to pay attention to the markets. Lets look at some examples: Mary is a clerk at the local grocery store, she makes a wage, paid every two weeks. Her income is not significant but it is Ok and predictable. All Mary know about the market is that there is one and she needs to invest in it so she can retire one day. Mary should dollar cost average buy having her money put into mutual funds on payday or once a month. Jack makes good money, sometimes over 6 figures a year. He pays attention to the markets but is really busy, off on business trips or trying to enjoy time off with family. Jack should dollar cost average buy having his money put into mutual funds on payday or once a month. Jennifer makes about $50,000 a year, she follows the markets daily, has a good rapport with her financial advisor, and reviews her portfolio regularly. Jennifer puts the maximum per month into retirement investments and has additional disposable cash to invest with at standby at all times. Jennifer does benefit from dollar cost averaging through a regular investment plan. Jennifer could also benefit from timing equity purchases at low ends of the market with her extra investable cash. Joe is independently wealthy, he lives off his investments. Joe can afford to strategically place dollars over the course of economic cycles without impacting his everyday life. Joe can afford to try and time the market with a small percentage of his wealth. If he gains, he will gain big, if he doesn't he has minimized his loss. For most of us, dollar cost averaging is the way to go. Dollar cost average. © julymoon.com |