AaronandSarah.net | AaronandSarah.net Blog!

The secret to successful investing: Dollar-cost Averaging (Tuesday, December 20, 2005)

That's right. That's the biggest secret to being a successful investor. Well... that and knowing what to invest in. But that's a whole different story.

What exactly is dollar-cost averaging? Essentially, it's the process of investing a little over time, in steady increments. You are not limited to full shares; you can buy bits and pieces and over time it will add up. For those of us who have a 401(k), we already have a general idea. A small amount of your paycheck goes into an account, and it grows over time.

So why do I think that dollar-cost averaging is the secret to successful investing? Well I must admit, I feel it takes a lot more than that to be a successful investor. For instance, a well diversified portfolio is always a wise choice (anyone remember hearing "Don't keep all your eggs in one basket" as a child?). Anyone thinking about investing will invariably ask a well-experienced investor for some "good advice". And it never fails, you always hear "buy low, sell high!". However, that doesn't quite work for everybody. Not many of us have the luxury of sitting around at work and watching streaming quotes.

So how can we maximize our investment dollar? I'm so glad you asked. By buying a little bit at a time, of course. Stocks are, unfortunately, unpredictable (but don't tell Warren Buffet that!). Sure, you can research the company, gather all the data you possibly can, but you still can't fully predict what the future will bring. Stock prices go up, stock prices come down. It's almost a daily occurrence. You, as a dollar based investor, have an advantage over the investor buying large numbers of shares. How? Well, as you're steadily going along, investing $50 a month to a particular stock, you may be buying just at a time where the stock has been coming down. So you're gathering more shares (or portions of a share) when the price is low, all for the same amount of money. Sure, if you have several thousand dollars to spare, that probably doesn't matter too much to you as you could simply buy more when the price is low. But to most of us, we don't have the luxury of kicking around that kind of money. So this makes perfect sense for the "average Joe".

So, have I got you interested in dollar based investing? Great! You're probably wondering where to turn to begin taking advantage of this awesome experience. Look no further than discount brokerage ShareBuilder. With no account minimums, no inactivity fees, and commissions as low as $4 per trade, they are definitely worth a look. And if you find them interesting, let me know and I can get you $25 free for you to invest. You can't beat that deal! You may contact me by sending an email to "aaron" at this domain name (aaronandsarah.net). That's about all I have for tonight. Look forward to my stock picks for 2006 (coming soon!).

- Aaron

posted by Aaron and Sarah at 8:28 PM   
If you think our blog is cool, you should see our forums!

0 Comments:

Post a Comment

<< Home