How the dollar cost averaging works ?
Lot of my friends always ask me what are the good stocks to purchase ? but my common question to them was ‘what is your long term goal ?’ and ‘what kind of risk that you can take ?’
If you are looking for a longterm retirement growth and you don’t have any knowledge in investing I always suggested them to pick up one of the Retirement funds available in the market and invest in it on a monthly basis or a bi-weekly basis with specific amount. This has been proven excellent for me with T.Rowe Price Capital appricition
fund and T.Rowe Price Retirement 2025 Fund.The good thing with averaging a fund or stocks is you get more shares for the same price when the market goes down and vice versa. In most cases this kind of investment will work good for longterm investors.
I believe and experienced that if you are looking for short term investment growth
I would prefer to pick stocks which has a solid growth record going back atlest 20 to 30 years and invest in it.
In my case aggesive stock buying always showed my portifolio in red, most of the times when you tempted to invest in high flying stock where you would know when every one got a piece of it.
So my final conclusion is I always made good money by investing in stocks like Procter & Gamble (PG), Pepsi by doing the dollar cost averaging.
This is what I suggested to my friends
If you are planning to invest $10,000 in to a stock or mutual fund , do not invest that money all at once in to one stock. Instead put the money in to one stock that you choose in 12 monthly intervals or put it in to atleast 4 different stocks. So this way they can either average one stock price or the investment is divirsified into 4 good stocks.