Dollar Cost Averaging

What matters the most is not how much you invest, but simply that you do invest. You can always increase your investment amounts as time passes and your income increases, but what’s most important is to:

Start now.
Start small if you have to.
Be consistent.

It can be pretty frightening to dump a large sum of your hard-earned money into an investment all at one time. That’s why it makes sense to invest gradually, with small amounts over time.

Better yet, the advantage to regular investing–which is also called dollar cost averaging–is that you may actually buy more shares over time than you would if you invested your money all at once. See how this works in the table, below.

Invest $200 a month for six months:

Month	Price Per Share	Number of Shares Purchased
January	$15.00	13.33
February	$15.00	13.33
March	$13.00	15.38
April	$12.00	16.66
May	$14.00	14.28
June	$10.00	92.98
Total	$79.00	92.98
Total Investment	$1,200.00
Average PRICE per share	$79 / 6 = $13.16
Average COST per share	$1200 / 92.98 = $12.90

When prices rise, your regular investment buys fewer shares. When prices drop, your same investment buys more shares. The result is that the average cost per share ($12.90) over time will generally be lower than the average price you paid ($13.16).

This strategy allows you to take advantage of market fluctuations, so you can feel good about your investment plan even when stock prices tumble. That’s when you’ll do the best bargain basement shopping.