Stock Market Investing Principle 2
Dollar Cost Averaging
Learn how to tolerate risk when investing in the stock market.
Through dollar cost averaging, we attempt to eliminate risk and but there is no absolute way to guarantee stock returns.
Okay, lets get down to business. Principle number two is that there is no guarantee. Whether you buy
stocks, bonds, mutual funds, or leave it in a money market account, there are no promises that you will make a positive return. However with the right education and research, you can greatly increase your chances of making money and keep your principle protected.
The concept of risk goes hand in hand with investing in the
stock market. The higher your level of acceptable
risk, the larger your return could be. The lower your risk tolerance
is, usually brings in a lower amount of earnings. You can never
completely remove risk from your investments, but you can do things
to help get it under control and make it palatable. P.S. Even if you
buried all your money in the backyard, it is still subject to risk.
Someone could steal it, you could forget where you buried it, etc...
Attempts at Tolerating Risk
Notice, I did not call this paragraph "Eliminating Risk", I said, attempts at tolerating it. There are several strategies when investing in the stock market. The easiest long term is: dollar cost averaging. This takes the smallest amount of time and entices you to stay in the market during high times and low times. Actually, you are happier during the lows since your dollar has more purchasing power and you are buying great stocks (ones that you researched) at a discount, and we all love a discount!
Basically, you invest a constant amount of money each month to buy the same stock or stocks. When the market price increases, good for your previously purchased share, your investment buys fewer shares. However, when the market price of the stock goes down, your monthly investment will purchase more shares at the new cheaper price. Over the long term, you will pay less per share and realize a larger return on your money. Now, no stock investment is totally safe from going broke. This is where your research and education of investing will help in picking the right investment for your risk level.
Principle #3