Lump Sum vs. “Dollar-cost Averaging”

Updated February 11, 2017 | Infoplease Staff

Since stocks can fluctuate in value constantly, some investors spend time trying to figure out when is the best time to buy or sell.

“Dollar-cost averaging” can help reduce risk. You have a set amount deducted from your bank account or paycheck each month that is used to buy stocks, mutual fund shares, or bonds. When the price is low, you buy more shares, and when it is high you get fewer shares. Research has shown that buying in this way can lower the average price per share.

Some experts question whether dollar-cost averaging is really beneficial. They suggest that if you have a lump sum to invest, and can tolerate risk; you might as well invest all the money at once. But, if you do not have a lump sum, you can make investing a habit through dollar-cost averaging.

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