Choosing the proper investment vehicles is the first step toward a successful investment strategy. How and when you fund those investments is just as important.
It is not always prudent to invest all of your funds at once. “Averaging” into an investment can help avoid market fluctuations and better align your investments with your long term goals. Talk to your financial professional about the following strategies for investing:
Dollar Cost Averaging: Dollar-cost averaging occurs when you take a lump sum and divide it into smaller investments of equal amounts, spaced out over a set period of time. The intent is to smooth out the highs and lows of the market instead of trying to time the markets volatility. A poorly timed one-time large investment can have heavy consequences.
Share Averaging: Much like dollar-cost averaging, but instead of a set amount of money you buy a set amount of an investment. For example you may choose to buy 100 shares of a specific stock, ETF, or mutual fund each month. Like dollar cost averaging, you remove emotion and an attempt to time the market.
Down Averaging: Averaging down is an investing strategy where additional shares of a stock that has dropped in value are purchased. This decreases the overall average price of ownership of said stock. In this strategy the price of the overall investment does not need to rise as much in order to experience profit.
Using averaging strategies can be very useful in careful planning and removing emotion when it comes to investing. InvestorKeep recommends you discuss whether averaging is right for you with your financial professional.