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Finance Dictionary and Glossary of Investment Terms
dollar cost averaging
An investment strategy designed to reduce volatility in which securities, typically mutual funds, are purchased in fixed dollar amounts at regular intervals, regardless of what direction the market is moving. Thus, as prices of securities rise, fewer units are bought, and as prices fall, more units are bought. also called constant dollar plan.
See: Constant dollar plan
A popular investment technique that calls for investing the same amount of money in stocks each month, quarter or year. The advantages of this strategy are that it requires no effort to ""time"" the market (such efforts usually fail), and it automatically causes you to buy more shares when they are cheap and fewer when they are expensive. The disadvantage is that, because in the long run stocks tend to rise, most of the time investors are better off investing a lump sum all at once. In the long run, this leads to greater gains than dollar cost averaging, but in the shorter run poses risks many investors can''t accept.