July 27, 2010
A good way to "hedge your bets" in a struggling market is to use a Dollar Cost Averaging program.
There is no way of knowing when the market is going to go up or down, but by establishing a systematic investment strategy you can take some of the guesswork out of investing.
This means that instead of investing all of your allocated money at once, you invest some of it every month, over a period of time such as six months or one year. This allows you to buy into the market at different prices over time, versus making one large purchase. You end up buying more shares when prices are low.
For instance if you go to the grocery store today and you need peas, you may be tempted to stock up and buy a number of cans. The price of peas today may be $1.09 a can. Next week they may be on sale for $.89 a can. A few weeks later they may be $1 a can. Then a month later they may rise to $1.29 per can.
The same is true with investing. When you place a market order you don't know if it is going to be an "up" or a "down" day for the market. You may be buying "high" if you make all of your purchases at once.
Your financial advisor can help you determine whether this strategy is right for you. If you have any questions please contact me at Brighton Securities.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).