They say 'time in the market is more important than timing the market'. What this means, and research has shown, is that your investment returns depend more on picking the right investments and giving them time to perform, than picking the right times to buy and sell. The best way to overcome trying to pick the peaks and troughs is to use the investment strategy called dollar cost averaging. Don't worry about the terminology - it's jargon for 'investing regularly.'
What is dollar cost averaging?
Put simply, dollar cost averaging is where you continue to invest a regular amount at regular times regardless of the market value, and you don't try to pick the right time. Over time, this will average the cost of your investment.
Dollar cost averaging helps you maintain a disciplined approach to investing: when prices decline and many pull out of a market, you will continue to invest the same amount and acquire more units. And when prices are high, and many rush in, you will be buying fewer units. It eliminates market emotion from investment decisions and reduces the impacts of market peaks and troughs.
At a glance
- It is important to spend time in the market instead of timing the market.
- Dollar cost averaging means investing regular amounts at regular times.
- Dollar cost averaging is a disciplined approach to investing which reduces the impact of market movements.