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Dollar Cost Averaging


If you are a disciplined investor you will recognize that it is IMPOSSIBLE to buy nothing but bargains every time you enter the market. It is equally impossible to buy at the bottom of the market and sell at the peak of the market for a particular share unless you are especially lucky, and if you are I will guarantee that you cannot keep on repeating that experience.

If Grandma has left you $10,000 in her will and you sensibly decide to invest it in the share market (remembering, I trust, that there is no such thing as a short-term investment) you will probably decide that the best thing to do is wait for the market to drop so that your investment will be made with bargains only. Good Luck!

Let’s take luck out of the equation and let “the market” and simple arithmetic do the job for you. Why do some people regard the share market as “risky” for the simple reason that every time there is a drop in the market the headlines scream at the billions of dollars that have been wiped off the value of the great majority of shares that are traded?

A system of investing using dollar cost averaging lets the fluctuating market produce the result you are looking for. This means that you invest a fixed dollar amount in shares on a regular schedule, regardless of the share price, so you buy more shares when prices are low and fewer shares when prices are high.

Bear in mind that you are investing NOT speculating and that you have not lost any money until you actually either sell at a loss or your company goes into liquidation. At that point even the unsecured creditors get no money, let alone the owners (=investors).

The following example is real but only short term. I used the system for 10 years so that I could give each of my 14 grandchildren $4,000 when they turned 18. Much better than sending them 18 birthday cards! My investment was $15,880, the kids each got $5,600 and I still have some of the original investment left over.