What is Dollar Cost Averaging

Investment strategies all try to find ways to maximize investments and earn money. Investing can be a scary idea to many, but luckily there is a strategy that helps people ease into the market. Dollar Cost Averaging is an investment strategy that allows people to invest in an automatic, low stress, leveraged way. Best of all, it can be done with small amounts of money over time.

This strategy calls for a predetermined investment to be made over a specific period of time. For example, a $50 investement monthly. The easiest way to establish this strategy is to sign up for an automatic withdraw from your checking account to purchase the security you want on a periodic basis.

Knowing that you are investing that specific amount every month makes this a strategy that needs very little involvement. There is no worrying over how much to invest, if the timing is right to invest, or what to invest in. To further simplify the process the automatic investment should go into an ETF, an exchange traded fund, like the SPIDER, the S&P 500. This will allow you to diversify with every investment, even with only a small investment every month.

As you purchase stocks on your time table the price of the securities will fluctuate. When the security prices go up you purchase fewer shares, when the price goes down you purchase more shares. The amount of money you are investing does not change. This strategy also helps you to see price declines as the sales that they are, you are simply getting a better price for the shares and accumulating them more quickly.

The beautiful thing about this strategy is that it does not take a lot of money to get started or to maintain. You can establish the plan for almost any amount you wish and set up that automatic investment over whatever time period you wish. The key to this strategy is to be consistant and disciplined to invest no matter what the market is doing.

An excellent place to get started with dollar cost averaging is sharebuilder. You can establish an automatic invertment plan into an ETF and just let it go. Over time you may be surprised at how many shares you have accumulated and how your money has grown.

Dollar cost averaging is an investment strategy that works for new investors and experienced investors alike. It allows you to accumulate shares over time by making small investments that build up over time. It also takes much of the fear out of investing.