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Dollarcost averaging smooths out market fluctuations from "summary" of A Random Walk Down Wall Street by Burton Gordon Malkiel
The idea behind dollar-cost averaging is that if you consistently invest a fixed amount of money at regular intervals, you can take advantage of market fluctuations. By investing a set amount each month, regardless of market conditions, you end up buying more shares when prices are low and fewer shares when prices are high. This approach helps to smooth out the ups and downs of the market because you are not trying to time the market or predict when prices will be at their lowest or highest. Instead, you are steadily accumulating shares over time, regardless of short-term fluctuations in the market. Dollar-cost averaging can be a particularly effective strategy for long-term investors who are looking to build wealth over time. By spreading out your investments and consistently buying shares at different price points, you reduce the impact of volatility on your overall portfolio. While dollar-cost averaging does not guarantee profits or protect against losses, it is a disciplined approach that can help investors avoid the pitfalls of trying to time the market. By sticking to a regular investment plan, you can take advantage of the power of compounding and potentially achieve better long-term results.- The concept of dollar-cost averaging is a simple yet powerful strategy that can help investors navigate the unpredictable nature of the stock market. By focusing on consistent, disciplined investing over time, you can smooth out market fluctuations and work towards your long-term financial goals.
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