Nobody can time the market. It’s true. No one really knows when a bull market has topped or when a bear market has bottomed. And it takes a lot of mental energy and time to figure out the near top or bottom levels. Is it really worth your mental energy if you plan on holding onto a stock that you believe has the greatest potential in the long term?
Well, another method that you can consider is to dollar cost average. It is basically an easy way for anybody to save and invest without much thought.
You basically set a plan, for example, to put in $100 per week irregardless of the price. Whenever a stock is increasing in price, you will buy a little less stock. And whenever a stock is falling, you will acquire more stock.
Many people get greedy and think, why can’t I just put a lump sum amount at the lowest price, to get the highest potential? Well, it’s not easy to time the market. You never know that the money that you have invested is really at the absolute bottom, or it will fall further down in price even more!
A simple strategy is to dollar cost average, and buy for the long term. If you have studied and analyzed the fundamentals, all you need to do is to have faith. Believe in yourself, and believe that in time, you will be able to acquire more stock and the price level will increase. It’s not going to be fast, it’s not a one month, or two months duration. It may take years and even decades.
It takes a lot of disciple to put in your hard earn money every week to accumulate a stock that you have full faith in it that it will increase in price over the long haul.
There are 52 weeks in a year. Depending on your budget, you can plan to allocate $100 or more per week. Sometimes you can also invest every month instead of weeks. For $100 per week, you will have invested about $5200 per year.
It takes a lot of disciple and faith to dollar cost average. It’s a better strategy than placing a lump sum, as the risk is lower. It’s never too small an amount, if you start to invest. A small sum of money can grow into a large amount of money with time.