Successful Investment Plans Using Dollar Cost Averaging

You can build a sound investment portfolio regardless of ready capital by diversifying, hedging paper investments with precious metals and building your portfolio by making regular investment contributions. Dollar cost averaging sounds complicated, but the term only describes investing a predetermined amount regularly according to a schedule that you set. Your periodic fixed-dollar investment buys more shares when prices are down and fewer shares when prices are high.

New or nervous investors, people with limited funds and even those who come into substantial windfalls can use dollar cost averaging to spread their risks over longer periods, take advantage of unanticipated spikes in investments and get a lower average cost for of shares of stocks, commodities, bonds and ETFs.

Organizing an Investment Plan

Regardless of investments or amount of disposable capital that you have, taking time to assess your short- and long-term goals is critical for financial success. You can choose among stocks, ETFs, mutual funds and physical commodities like gold and silver. Diversifying investments minimizes your risk so that investments aren't all based on the same economic drivers.

You can use dollar cost averaging to buy stocks, precious metals, mutual funds, ETFs and other types of investments. How you choose to diversify can be based on many factors, but consider precious metals as essential investment vehicles that protect you from economic collapse. Gold and silver have historically proven to be safe investments, and you need never worry about losing all your money.

How Dollar Cost Averaging Works

Dollar cost averaging works similarly to the way that your 401(k) or other retirement plan invests your money for long-term gains. The benefit for investors is that you don't have minimum or maximum limits on how much you can invest in these structured investment programs. Choose a fixed dollar amount, a time interval and investment vehicle, and your dollar commitment will buy as many shares as possible based on current market prices at each time interval. You can invest a large windfall, or arrange small deductions from your pay. Benefits of dollar cost averaging include:

  • Spreading Risk: Investing the same amount each week, month or quarter spreads your risks of taking a major hit, missing opportunities and losing all of your investment. If prices drop significantly, you'll be able to buy more shares for the same money next time. The law of averages works on your side.
  • Providing Psychological Reassurance: Eliminate the stress of worrying about large capital commitments or fluctuations in the market. New or nervous investors often take unnecessary losses due to weak nerves, and nobody chooses winners 100 percent of the time. Committing to regular investments allows investors to take temporary market ups and downs with greater equanimity and helps to reduce ill-advised emotional responses.
  • Allowing You to Invest Smaller Amounts: Employees can now buy gold and silver through payroll deductions that are separate from retirement plans and don't require a lot of capital. Many people think that they can't afford to invest in gold, silver and precious metals, but setting up an automatic dollar cost averaging arrangement allows you to buy shares in physical metals that will never lose all value. People who receive inheritances, insurance settlements or other lump sums worry about investing all the money at one time. You can use dollar cost averaging to make investing easier to handle psychologically by committing funds in stages.
  • Developing Discipline: Many people quit investing after losing money, but history shows that riding out the ups and downs almost always leads to financial growth. Setting up small, automatic investments gives you discipline and experience so that you can weather temporary setbacks.
  • Building Equity on the Lay-away Plan: Buying precious metals through employer deductions requires minimal administration, and you can take possession of your metals once you pay for an ounce of gold or 20 ounces of silver. Owning a physical commodity reassures many investors and gives them flexibility to realize value during financial crises.

Example of Gold Investing Using Dollar Cost Averaging

The following chart shows how a $500 monthly investment in gold would work for hypothetical market prices over a six-month period:

Date Price per troy ounce Investment amount Ownership Percentage Percentage if all $3,000 were invested
January 3 $1,400 $500 .357 2.14
February 3 $1,200 $500 .416 2.50
March 3 $1,350 $500 .370 2.22
April 3 $1,025 $500 .488 2.93
May 3 $1,100 $500 .455 2.73
June 3 $1,050 $500 .476 2.86

As you can see, if you invested $3,000 in January, you would have lost $350. By investing gradually, you not only reduce your losses to $309 but also own more stock so that you have a better chance of recovering losses.

Ease into investing by making affordable monthly installments on investments with a dollar cost averaging plan. You can use the strategy for all types of investments, but be sure to include precious metals to diversify your portfolio. Metals have intrinsic value that resists artificial manipulation. Countries can't print gold and silver, but they can change interest rates, devalue currency and print too much money, and all these initiatives make paper investments risky.

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