3 Ideas for Investing in a Down Market (Part 3)
Today’s strategy idea for investing in a down market has to do with
dollar-cost averaging. This is a technique that helps you invest regularly, in a measured manner, and in a way that is sometimes considered less risky than lump-sum investing. Many beginning investors use dollar-cost averaging to overcome a fear of investing.
Many long-time investors use dollar-cost averaging in portions of their
portfolios that are considered less risky.
Dollar-cost averaging
If you have an investment account — such as an IRA or a 401(k) — you are already engaged in dollar-cost averaging. This is also sometimes referred as fractional share investing. In dollar-cost averaging, you put in a set amount of money regularly to buy shares in a company or a fund. This method allows you to buy partial shares as well.
For example, if you put $100 of every paycheck into an investment account, you would buy as many shares as you could. If the share price was $30 a share, your $100 would be 3 and 1/3 shares. If the share cost $200, you would purchase 1/2 a share. The shares start to add up. And, because you are only putting in a small amount at a time (and buying fewer shares), you are less exposed to large swings in price. Of course, it also means that you won’t see massive returns.
Of course, dollar-cost averaging doesn’t let you off the hook in terms of research. You still need to choose sound investments in order to get a return, and you should still carefully consider your options.
Any measured investment strategy that you take during times of a down market is not likely to be one that generally garners dramatic returns. But these investment strategies can limit your risk while at the same time increasing the chances that your money will see *some* growth, even during a time of trouble.
** Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment carries the risk of loss.
This is the second in a three-part series for Talk Stock Trading by guest Miranda Marquit. Miranda writes for Yielding Wealth and for the Banks.com Money & Investing blog. You can read Part 1 of the series here and Part 2 of the series here.
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