Dollar-cost averaging pays off

You’re probably tempted to opt out of those low-performing stocks whenever Wall Street slumps. You may even have given in and funneled your money into a morepromising portfolio. But if you didn’t and if you continued to make regular purchases — $100 a month or $500 a month or whatever — of shares of stock you’re probably sleeping better now. This process of investing the same amount in the market at regular intervals is known as dollar-cost averaging. It and diversification are considered the two vital supports of a sturdy portfolio to survive the rises and falls, no matter how severe, of the stock prices.

By sticking to your plan of pouring a fixed amount of money in a regular basis, you won’t be traumatized by television’s talking heads reporting on market slumps and surges like it was the weather.

When the XYZ stock you began buying in the 1980s began climbing from the $1 purchase price to a high of

$3 you felt good. But when it slid to 30 cents a share as the market toppled, you most likely had a sinking feeling in your stomach. But look at what dollar cost averaging did for you.

At $1 a share, $100 bought you 100 shares. When it rose to $3, your regular $100 investment garnered about 33 shares. But when the price sank to 30 cents, your regular $100 input picked up more than 330 shares. And as the market struggled back up, so did the total value of your increased holdings.

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