How to Dollar Cost Average

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By missdebtfree
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Dollar Cost Average

Dollar cost averaging is a technique of making fixed periodic investments overtime regardless of what the market share price is. Most people end up investing like this because they don't have large sums of money available to invest. Dollar cost averaging allows you to average your investments at lower market prices. Overtime, you will have more shares at a lower price, which will allow you to make more money when the market rises. Dollar cost averaging protects you more when the market takes a dip than if you were making lump-sum investments.

Difficulty: Moderate

Instructions

Things You'll Need:

discount brokerage company
extra cash for investment

Step 1

Research a discount brokerage company, that you want make your investments with. If you already have a company that your 401(k) is invested with then you can stick with that company or find another one that will suit your investment needs.
Step 2

Choose your investments. Decide on whether you will be making investments into a Roth account, regular taxable account or mutual funds. Research which investment opportunity is best for you.
Step 3

Your 401 (k) is already set up for dollar cost averaging. Hopefully you have set aside a certain percentage to be automatically invested every month. You would do the same for any other investment that you want to dollar cost average. Decide on an amount that you can afford to invest every month.
Step 4

Set up this amount to be invested either through direct deposit or bank draft from your account automatically. You can make investments every two weeks, every month, or quarterly. This way you can easily fit investing into your budget.
Step 5

For successful investing, stick to your automatic investments. Dollar cost averaging works overtime to ensure you are averaging the lower stock price.