Developing a Dollar Cost Averaging Plan

No one can afford to have his or her investing plan be forgotten or relegated to the back burner. You need to set up a plan for making set, regular investments. This way, you can ensure that your money is working for you even if your best intentions are diverted.
Dollar cost averaging is a way to ensure that you make fixed investments every month or quarter, regardless of other distractions in your life. Dollar-cost averaging is a simple concept:
You invest a specified dollar amount each month without concern about the price per share or cost of the bond. The market is fluid — the price of your investment moves up and down — so you end up buying shares when they’re inexpensive, some when they’re expensive, and some when they’re somewhere in between. Because of the commission cost to buy small amounts of stocks or bonds, dollar cost averaging is better suited for buying mutual funds.
If you have a 401(k) plan at work, you already have experience with dollar cost averaging. You fill out the forms for the plan and direct your payroll department to take a certain dollar amount or percentage of your pay every payday and use it to buy the mutual funds, stocks, bonds, and/or money market account you’ve selected. Investing this way is important for your retirement accounts and your financial plans:
It’s the only way most of us can grow our money in a consistent manner.
In addition to helping you overcome procrastination about saving for investments, dollar cost averaging can help you sidestep some of the anxiety many first-time investors feel about starting to invest in a market that can seem too overheated or risky. With set purchases each month or quarter, you buy shares of your chosen investments regardless of how the market is doing.
Dollar-cost averaging isn’t statistically the most lucrative way to invest. Because markets rise more often than they decline, you’re better off saving up your money and buying stocks, bonds, or mutual funds when they hit rock bottom. But dollar cost averaging is the most disciplined and reliable way to invest. Consider this: If you set up a dollar-cost averaging plan now, then in 10, 20, or 30 years, you’ll have invested every month in between and accumulated a pretty penny in the interim.
Most mutual funds let you start out on a dollar cost averaging plan (or automatic investing plan, as they’re also called) for as little as $50 or $100 a month. The only catch is that you have to sign up to allow the fund to take the money from your checking account each month. To find out if the funds you’re interested in offer the service, look for the information in their prospectuses or call their toll-free shareholder services phone number.