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Answ3r3r | Does dollar cost averaging really work? |
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dredude52
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Sure it works, as long as the market comes back during your lifetime.
But why would you buy something, or own something, that is declining in price? Is that "investing?"
Investors using this method bought all the way up to the 2000 high. Six years later, they're still waiting to get back to even. If you bought the smaller Nasdaq stocks, your investment is probably still cut in half.
And if this is your idea of long-term investing, then you probably won't mind waiting another six years to make a profit, if then. |
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pvsk7
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Dollar Cost Averaging works in some cases and some times it does not. But one thing to consider is whether you have the capital upfront so that you can invest everything in one shot. Dollar Cost Averaging is very good when you do not have that much money to start with and can invest little say every month. 401k is a good example.
If you have the capital upfront then it is a question of how much confident you are on the investment you are making. If you are very sure that the investment is going to go up then you should invest everything at once. However many of us are not very sure so we want to average out the price. Remember this, in essence you are averaging out risks as well as returns. You are reducing both.
For example, Dollar Cost Averaging will provide sup par returns when you start when a long bull market begins. It will be great if you start it in middle of a bear market.
A newer concept is called "Value Averaging" , but I am not sure any broker offers this. |
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Adios
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Dollar Cost Averaging is an excellent way to invest for the long term. 401K investments are a great example of DCA. You're working and each pay period some of your pay goes into your 401K plan which is most likely invested in mutual funds. When the market is up, your 401K contribution buys few shares, when the market is down, your contribution buys more shares. You buy more when the cost is lower, buy fewer when the cost is higher.... Over the long term, DCA is a great method for investing in stocks or stock mutual funds. |
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Hoa N
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In the bull market, the answer is YES
in the bear market, the answer is No.
because in the the bull market, stock prices are usually going up,so dollar cost average is okie
in the bear market, stock prices are usually going down |
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comptech0507
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Well, as with anything dealing with the stock market nothing is 100% perfect, but cost averaging comes pretty close. It helps because it's really easy to get started and also there's the fact that you're not taking huge hits of loss to your investments. It works really well beacause overall it's harder to lose hard, but the draw back is that it's hard to gain a lot. I hope that helps, but in the end when it comes to investing it's just never guranteed. Hope the link helps.. |
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rlanicek
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Absolutely! I'm assuming you understand the concept. Invest regularly regardless of the market conditions. That way you'll buy more when the price is down and buy less when the price is up.
My opinion is that one of the strongest advantages of this method is the regular investing. Most dollar cost averaging plans involve automatic investing/deductions. A lot of us don't have the discipline to write that check every month, but if it is automatically withdrawn then you don't have to think about it.
Good luck!
Rick Lanicek
www.primelendingonline.com |
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Lianne
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Yes |
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BuddyGuru
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Not when it goes down and stays there |
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