Dollarcost averaging reduces risk from "summary" of All About Index Funds by Richard A. Ferri
When you invest a fixed amount of money at regular intervals, you buy more shares when prices are low and fewer shares when prices are high. This strategy, known as dollar-cost averaging, can reduce risk by smoothing out the effects of market volatility on your investment. By purchasing more shares when prices are low, you lower your average cost per share over time. This means that you don't have to worry about trying to time the market to get the best price. Instead, you simply invest a fixed amount of money at regular intervals and let the market do its thing. Dollar-cost averaging is a passive investment strategy that is particularly well-suited to index funds. With index funds, you are investing in a broad portfolio of stocks or bonds that track a particular market index. Because index funds are passively managed, they have lower fees and turnover ratios than actively managed funds. This means that you can invest in index funds with confidence, knowing that you are getting broad market exposure at a low cost. By using dollar-cost averaging to invest in index funds, you are able to take advantage of market fluctuations without trying to time the market. This can help reduce the risk of investing in the stock market, which can be volatile in the short term. By spreading out your investments over time, you are able to smooth out the effects of market volatility and potentially reduce the risk of investing in a particular stock or bond.- Dollar-cost averaging can be a powerful tool for reducing risk in your investment portfolio. By investing a fixed amount of money at regular intervals in index funds, you can take advantage of market fluctuations without trying to time the market. This can help you lower your average cost per share over time and reduce the risk of investing in the stock market.
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