Simple Investing: Dollar Cost Averaging

This month, for our B5 Media Business Channel Theme Day, we’re doing “elegant simplicity.” My thoughts immediately turned to investing. Many people are intimidated by it, and worried about putting large amounts of money into an investment.

One of the simple ways to participate in investing is to use dollar cost averaging. And, if you have a retirement account, you already employ dollar cost averaging to growth your retirement savings.

What is dollar cost averaging?

Dollar cost averaging is, basically, when you take a certain amount of money and regularly invest it by buying what you can with it — even partial shares. A simple illustration: You set aside $100 to invest. But shares cost $200. That $100 still goes to buy the stock, but you are only credited with half a share. Next time your investment amount is put in, you will own an entire share.

In the case of your retirement account, you put a set amount from every paycheck into a special investment account. Many online brokers and other brokers offer this option, and you can even do this buying directly from some companies.

This actually spreads out your risk. But, mainly, it is for regular folks who want to build their savings and net worth, but don’t have a lot of capital to make huge investments. It is a simple way to take advantage of investing. But remember: it doesn’t let you off the hook. You should still be careful about which companies you choose.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional.