Dollar-Cost-Averaging & Power of Compounding

Dollar-cost-averaging or automatic investing is one of the most effective ways to invest for long-term and mitigate the ups and downs of the stock market.  It's very straight forward: automatically invest (each pay-period, monthly, etc.), for example, a fixed amount into mutual funds or index funds regardless if the stock market is up or down. Based on the fixed amount, more shares are purchased when the stock market is low and fewer shares when it is high.  This method reduces your risk in the long-run by spreading your purchase price risk over a longer period of time.  Also, it takes away the guessing game of when to invest (timing the stock market). This is a proven and highly effective method to building wealth over time.  Click on this link The Power of Investing to learn more and see illustrative charts of various scenarios.  This site is a really good learning resource to gain foundational understanding about investing.

Here is a chart illustrating a scenario:  You invest $5,000 into a conservative mutual fund that averages 7% annually and dollar-cost average $200 a month. Here are the results.

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