|
|
One of the easiest and most efficient ways to invest in mutual funds
is through Automatic Investing. Often referred to as dollar-cost
averaging, Automatic Investing is a simple term for a type of mutual fund
installment-purchase plan. Automatic investing is especially valuable for
the investor who wants to get started in investing, but doesn't have a
large lump sum to invest.
Dollar Cost Averaging
"Buy low, sell high" may seem like good advice, but even experienced
investors find it impossible to pinpoint with any degree of accuracy when
the market will go up or down. That's why putting a fixed amount of money
into an investment on a regular schedule, regardless of market
conditions, is widely recognized as a sound investment strategy.
Automatic Investing works particularly well if you fear that you might
buy a mutual fund at its peak, just before the stock market and your fund
shares head into a slump. It provides a disciplined way to invest a
portion of income at regular intervals without trying to guess when the
market is at a high or at a low. It protects you from extreme
fluctuations in the market. And, its effect on your investment's growth
over time can be nothing short of amazing. Using this strategy, you buy a
fixed dollar amount on a regular basis, usually monthly or quarterly. In
this way, you will purchase a larger number of shares when the price is
low and a smaller number of shares when the price is high. When the time
comes to sell -- and assuming that the price when you sell is higher than
the average cost for your monthly purchases -- you show a profit.
The primary benefit of dollar-cost averaging by participating in an
Automatic Investment Plan is that your shares should have an average cost
lower than the average of the prices at which they were purchased. With
it, you are investing for the long term and counting on the upward trend
in the stock market over time. There is no complicated analysis of the
economy, the markets or interest rates. You simply invest a fixed amount
on a regular basis no matter what the share price is doing. More
importantly, you begin a disciplined investment approach that adds to
your portfolio's long-term growth potential.
Dollar-cost averaging does not ensure a profit, protect against a loss
in declining markets or against a loss if you stop the program when the
value of your account is less than its cost. You should consider your
financial ability to continue making purchases through periods of low
price levels. There is no method of investing that can guarantee a profit
if you should decide to sell at the bottom of the market, but the
potential for high return on your investment is increased with your
long-term commitment to dollar-cost averaging. A special attraction of
no-load mutual funds is the ease with which you may make additional
periodic investments in small dollar amounts, without a sales commission
each time. You can arrange to have automatic monthly withdrawals from
your bank account made directly into your fund account. By automatically
transferring $100, $200 or more monthly, you buy shares using dollar-cost
averaging and set aside savings that can grow over time. Automatic
Investing is one of many customer service features fund companies provide
and it's one of the simplest ways to achieve the benefits of dollar-cost
averaging.
 |
|
