Mitigate Risk and Invest the Systematic Way
S&P Capital IQ
If you participate in an employer-sponsored retirement plan, you are probably taking advantage of an investing strategy without even realizing it. If your plan contributions are deducted from your paycheck automatically -- and at regular intervals -- you are taking part in a systematic investment process called dollar cost averaging (DCA).*
As simple, and painless, as DCA may sound, it can provide significant benefits for the average investor, such as:
- Helping to manage risk -- When you invest systematically, you put the decision of when and how much to invest aside. Instead of trying to "time the market" -- and potentially buying or selling at the wrong time -- you invest a set amount of money at regular intervals. This disciplined approach helps you stay your course through the market's short-term ups and downs.
- Letting market volatility work in your favor -- When you invest a set amount at consistent intervals, you automatically buy more shares when prices are low and fewer when prices rise. When you compare the higher and lower share prices you pay over time with the number of shares you accumulate, the average cost to you per share may be lower than the average share price.
DCA cannot guarantee a profit on your investments, nor can it protect you from losses, but for retirement investors and others whose goals are long term, DCA can take the guesswork -- and some of the emotion -- out of investing.
*Dollar cost averaging involves regular, periodic investments in securities regardless of price levels. You should consider your ability to continue purchasing shares through periods of low price levels