What on earth is ‘dollar cost averaging’?!

Dollar-cost averaging.

It’s a geeky term that I don’t expect you to start bringing up at dinner parties, or barbeques, but I do want you to understand it, and start thinking about doing it in relation to your investments.

Here is an example…

Dollar-cost averaging refers to investing little by little over time, instead of in one lump sum.

An example would be putting $500 into a share portfolio on the 15th of each month.

The idea is that you don’t try to time the market and pick which day is the best for you to put your money in.

You focus on the long term and the confidence that if you keep putting money into your investment regularly, even if sometimes markets are up and sometimes they are down, over the long term, your investments will increase in value.

We all do this in our superannuation funds when you think about it, we have no control over exactly when our employer makes contributions on our behalf, the money just goes in and is invested on the day it hits the fund.

Not here, not now

The best thing about this strategy is that it keeps you focused on the long term, instead of the here and now.

And anytime we try to time the market, or get rich quick, it usually doesn’t work.

Chipping away, little by little, without failure, is the best way to grow your nest egg.

Start now

Like I always say, don’t wait until tomorrow to start saving and investing, start now.

Just commit to an amount each month that you’re going to set aside and stick with it. You don’t need to have a large amount of money to start investing in shares or a managed fund, you can do it with as little as $100 a month.

As with any investments, it’s prudent to seek professional advice to help you, and at the same time do some of your own research.

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