Young investors take notice of this simple investment
strategy that can give you long-term gains with less risk.
'Dollar cost averaging' may sound complicated but it
actually is one of the easiest, safest plans that you can
have set up in about 60 minutes.
Dollar Cost Averaging - The young investor's best friend.
Dollar cost averaging allows young investors to purchase
stock investments consistently over a longer period of
time. This stock market strategy works especially well
with broad-based market index investments like the mutual
funds and ETF's that mirror the return of the S&P 500.
This is an effortless yet powerful investment technique
that will lower your risk and potentially increase your
returns.
Dollar cost averaging works great for young investors that
are investing for the long-term. Young investors are able
to purchase more shares when the stock market experiences
short-term corrections. That way when the index turns
around and starts heading up in value young investors are
able to profit more because they own more shares.
When the market is rising young investors are able to
capitalize on the market trend because they are following a
consistent investment plan. As they purchase more and more
shares in a bull market that money is going to work for
them right away.
Dollar cost averaging spreads the prices that you purchase
stock market investments (cost basis) over a longer period.
That way you are protected from short-term price
corrections and profit from long-term uptrends.
How to Create a Dollar Cost Averaging Plan.
For young investors creating a successful dollar cost
averaging plan is simple. There are two basic steps that
will get your money working for you:
1. Decide on the exact amount of money you will invest each
and every month. The key to a successful dollar cost
averaging plan is consistency. You can increase your
investment over time but avoid investing different amounts
each month.
2. Set up the exact times you invest. If you decide to
invest once per month do so on the same day. For instance,
the fifth of every month invest $150. This is made simple
with help from an automatic investment plan. Set this up
one time and your investments are made automatically for
you each and every month. All you have to do is check your
statements to see how your investments are doing.
Improve your dollar cost averaging plan through
diversification.
Diversification is a simple spreading out the risk of
owning a stock investment by owning many different stocks
in a variety of sectors. Instead of owning one individual
stock, which is very risky for the inexperienced, you may
choose to own a group of stocks. This will reduce the risk
of owning any single investment. The investment of choice
for many young and beginning investors is broad based
indexes.
An example of a broad based market index is the S&P 500.
By investing in the S&P 500 index you own a piece of every
stock that makes up the S&P 500. Stocks like American
Express, Google, Ford, Nordstrom, Home Depot, Staples and
Yahoo are a few of the stocks that make up that index. That
way you're protected in case one of the stocks in the S&P
500 drops 70% of its value, you're only invested 1/500th,
and you won't experience too much loss from that. In
comparison, if you just owned that stock by itself you
would have lost 70% immediately.
For young investors, keeping your investments diversified
and using a dollar cost averaging investing technique - you
have effectively reduced risk and are in an excellent
position to achieve long-term profits.
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Vince Shorb provides Free video investment education for
young investors at http://www.FreeBy30.com . His course
'Financially Free by 30' guides young investors, with the
use of audio, video and interactive tools, to gain the
practical financial education that young investors need to
succeed in the real world.
