Dollar cost averaging is a practice that involves investing a fixed amount of money at regular intervals, regardless of whether the market is up or down. This means that when the stock price is low, you’re getting more shares for your money, and when the price is high, you’re buying less. It is a good compromise if you’re unsure about market conditions and are unwilling to commit a lump sum. If the price falls, you still have money to spare. If the market goes up, you realize gains that you may have missed had you kept to the sidelines. DRIPS or dividend reinvestment plans are a form of dollar cost averaging. While most investors use this strategy for mutual funds, in this era of low discount broker commissions, it is just as viable for individual stocks or exchange traded funds (ETFs).
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