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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Tuesday, May 23, 2006

The Benefits of Dollar Cost Averaging

The idea behind dollar cost averaging in investing for your portfolio is to buy using the same dollar amount of a stock or mutual fund (most likely mutual fund) at a regular interval. For example, you begin to invest in a certain mutual fund for your Roth IRA. The minimum initial investment in this mutual fund for a Roth IRA is $250. After reading the prospectus, filling out the necessary paperwork, signing it and enclosing a check for $250 your account is opened by the mutual fund on the 15th of the month. When you filled out your paperwork you instructed the fund to take out $250 from your savings account (see the forms for what bank information the mutual fund will need) on the 15th of each month thereafter. The benefit of investing the same dollar amount at the same time interval is that you will average out the highs and lows in the market and will not be prone to bad market timing.

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