ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

DOLLAR COST AVERAGING

Updated on November 9, 2011

Can you benefit from dollar cost averaging?


Technically, dollar cost averaging involves investing equal amounts of money at regular intervals over a long period. Theoretically, dollar cost averaging is a risk management technique. New investors are encouraged to use this technique with mutual funds or ETF’s because, it is easy; it is almost mindless. Theorists suggest that you will sometimes buy high and sometimes buy low with this strategy. Therefore, you average out your cost basis.

Although I am now retired, my many years of investment adviser experience and my personal investing experience has provided evidence that you can benefit from regular, periodic investments. On the other hand, experience with my own money and dollar cost averaging proved to be less stellar than its supporters suggest.

I started paying attention to investing in the late 1970’s and early 1980’s. Just about the same time, I was earning my MBA. It seemed to make so much sense to buy let’s say $100 per month of a mutual fund. At that time, few no load funds were available and the ETF had not yet been invented. Over the next nearly 15 years, I bought higher and higher and higher. I had a little bit of a chance to buy low in 1987 but that was short lived. I only bought low in two of the months.

If you started buying after the 1987 crash, you would have had the same experience I had, buying higher and higher. If you started buying after the dot com crash of the early 2000’s you would be buying a basically flat market until the last couple of years when you would be buying higher and higher.

Folks, it just does not work. Investing is not for the mindless. However, we know that our lives are complicated and filled with activities and we do not have as much time as we would like to pay attention to our investments.

I like a hybridized concept of dollar cost averaging using dividends. Readers of my website/blog and hubs know that I believe in income investing. I think it has a place for retired people but I also think it applies to younger people who are accumulating wealth. It is not just for those using their wealth for income.

When you buy a company that meets the criteria of a dividend machine (there are four criteria that you can read about on my website www.themoneymadam.com) you are buying a company that increases the dividend every year. When you reinvest the quarterly dividend, you buy more and more shares every time. You can decide to add to the number of shares if the stock price goes down in investing environments like those that we have today. Even if we just plug along for 10 years as we did from 2000 to 2010, you will be buying more and more share every quarter. You essentially have employed dollar cost averaging. Then when you are ready to use the wealth you have accumulated for income, you simply stop the dividend reinvesting and turn on the income spigot. Employ this technique with multiple companies and soon you will have a very nice income stream.

The moral of the story (or the hub) is dollar cost averaging as a theoretical technique has virtue. It is not mindless. Most mindless investing has poor results.

Very Truly Yours,

TheMoneyMadam

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)