Clink! MoreWorth’s casual correspondent, Alison Brower, discovers dollar-cost averaging, Over Drinks with Joy Marcus, Venture Partner, DFJ Gotham Ventures.
When I first started investing on my own—in addition to my 401K—I was young, single, and still paying off student loans. I had only a small amount of extra cash to work with. Still, I was willing to take some risk and I wanted to buy equities with it.
So with the help of a financial adviser, I invested about$500 every month. I used a strategy called dollar-cost averaging: You put the same dollar amount into the market at regular intervals (i.e. weekly, monthly), regardless of share prices.
With dollar-cost averaging, you buy shares sometimes when they’re low and sometimes when they’re high, but overall it reduces the risk of putting a lot into one investment at the wrong time.
As I began earning more, I continued that strategy, I just invested larger amounts. When the market fell apart in 2008, my husband and I reduced our monthly investments—but we never stopped. Staying in the market has worked out well for us; and if we had continued to invest monthly at our pre-recession level, we probably would have done even better.