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Dollar Cost Averaging
Term category: Stocks, Strategies
In 10 words or less:  A strategy of buying stocks at multiple prices  to remove timing risk.

Definition: Dollar cost averaging occurs when you buy shares of stock at multiple prices over time.  This is what happens when you decide to invest periodically.

StockJargon Advice: Dollar cost averaging is great because it removes timing risk.  You don't have to worry about getting in a stock at "the right time."  Consider this example:

Option A: Invest $1,000 at $50 per share.
Option B: Invest $250 per month for four months

Option B:
Month 1: $50 per share (5 shares)
Month 2: $45 per share (5.56 shares)
Month 3: $40 per share (6.25 shares)
Month 4: $55 per share (4.55 shares).

In this situation, option A resulted in a profit of $100.  Option B, however, resulted in a profit of $174

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Related Books

Wall Street Journal Guide to Understanding Money and Investments by Kenneth M. Morris
Investing for Dummies by Eric Tyson
Automatic Millionaire by David Bach
One Up on Wall Street by Peter Lynch

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