In this video, you will learn about an investing strategy called dollar cost averaging.
#dollarcostaveraging #investing #wallstreetmojo #timingthemarket #portfolio
Chapters:
00:00 – Introduction
00:51 – What is dollar cost averaging?
02:15 – Benefits
02:48 – Limitations
03:34 – Dollar cost averaging vs timing the market
04:21 – Conclusion
What is dollar cost averaging?
Dollar cost averaging is a strategy in which firms or even individuals break down their investments into parts and invest at regular intervals.
This investing approach allows investors to reduce volatility risks and sudden fluctuation in the prices of financial assets.
(Explained in detail in the video)
Benefits
The strategy doesn’t just help divide and reduce the risk associated with the price decline, but it also builds consistency in investing.
This strategy also allows investors to build a diversified portfolio instead of focusing on one single financial asset.
Limitations
If you are looking to get quick returns on your investment, then this strategy isn’t for you. You’d be better off investing lump-sum, but that means you’ll be taking on higher risk.
The second limitation is that transaction costs will increase if you invest with this strategy.
Dollar cost averaging vs timing the market
Timing the market would work only if you know for sure that the market will go up or down from a certain point. If you are a trader, then you may try and do that.
But from an investing point of view, if you try to time the market, then you’ll never be able to get it right a 100%. There will always be a better time to invest.
On the other hand, dollar cost averaging can help you avoid situations where timing the market can backfire.
(Explained in detail in the video)
This was all about dollar cost averaging. Subscribe to the channel, like the video, and share it with others.
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