Business and Personal Finance Dictionary

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 

• DOLLAR COST AVERAGING
  
  Adding a fixed amount of money on a regular schedule to an investment, such as a mutual fund or a dividend reinvestment plan (DRIP), is called dollar cost averaging, or a constant dollar plan. Since the share price of the investment fluctuates, you buy fewer shares when the share price is higher and more shares when the price is lower. The advantage of this type of formula investing is that, over time, the average price you pay per share is lower than the actual average price per share. But to get the most from this approach, you have to invest regularly, including during prolonged downturns when the prices of the investment drop. Otherwise you are buying only at the higher prices. Despite its advantages, dollar cost averaging does not guarantee a profit and doesn't protect you from losses in a falling market
  
  Back