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LSDefine
Simple English definitions for legal terms
dollar-cost averaging
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A quick definition of dollar-cost averaging:
Term: DOLLAR-COST AVERAGING
Definition: When you want to invest your money in something like stocks or bonds, you can use a strategy called dollar-cost averaging. This means that you put in the same amount of money at regular times, like every month or every week. By doing this, you buy more shares when the price is low and fewer shares when the price is high. This helps you avoid buying all your shares at a high price and losing money.
A more thorough explanation:
DOLLAR-COST AVERAGING
Dollar-cost averaging is a way of investing where a fixed amount of money is invested in a particular security at regular intervals.
For instance, if an investor wants to invest $1000 in a particular stock, they can choose to invest $100 every month for ten months instead of investing the entire $1000 at once. This way, the investor can buy more shares when the price is low and fewer shares when the price is high.
Another example is an employee who invests a fixed amount of money from their paycheck into a 401(k) plan every month. This way, they can benefit from the long-term growth of the stock market without worrying about market fluctuations.
Dollar-cost averaging is a strategy that helps investors reduce the impact of market volatility on their investments. By investing a fixed amount of money at regular intervals, investors can buy more shares when the price is low and fewer shares when the price is high. This way, the average cost of the investment is lower, and the investor can benefit from the long-term growth of the market.