Dollar cost averaging is an
investing technique intended to reduce exposure to
risk associated with making a single large purchase. The idea is simple: spend a fixed dollar amount at regular intervals (e.g., monthly) on a particular investment or portfolio/part of a portfolio, regardless of the share price. In this way, more shares are purchased when prices are low and fewer shares are bought when prices are high. The premise of dollar cost averaging is that the investor wants to guard against the market losing value shortly after making his investment. Therefore, he chooses to spread his investment over a number of periods.
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Method of purchasing
securities by investing a fixed amount of money at set intervals. The
investor buys more
shares when the price is low and fewer
shares when the price is high, thus reducing the overall cost.
A system of putting equal amounts of money in an investment at regular time intervals to lessen the risk of investing a large amount of money at a particularly inopportune time.
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