Investing Trends

Dollar cost averaging is one of the most popular ideas in the investing community. Everyone looks to wish it and it have go a password among stock and common monetary fund brokers. If it is properly done you will do money, if not you will lose money or at best stay even. Let's analyze the basic premiss behind this method of investing.

You make up one's mind to purchase shares in Mouse Trap, Ltd.(symbol CHZ), a computing machine company that bring forths sophisticated hardware. The shares are now selling for $40 and you desire to purchase approximately $1,000 worth each month. Today you purchase 25 shares. Next calendar month the stock have gone up to $43 so your purchase is 23 shares (I'm rounding these off because you can't purchase fractions of shares.) The following calendar month it drops back to $40, you get 25 more. Then at $37, you have got 27 shares. At $35, 28 shares. At $32, 31 shares. You have got got got invested $6,000 and have 159 shares at an average cost of $37.75.

With the current terms of the Mouse Trap at $32 you have a loss of almost $1,000 (159 Ten $32 = $5,088). The physical object of purchasing any stock or common monetary fund is to have got more than than money than you set in, not more shares and less money. Who came up with this anyway?

Many old age ago a broker talked his client into purchasing a thousand shares of Windfall Train (symbol EZSt) at $50 per share. In 30 years Windfall Train had spilled down to $30 and the broker didn't desire to state his client the bad news, but he had to name him so he came up with this: "Great news, Mr. Mushroom, Windfall Train is now at $30. If you purchase another $50,000 worth you can get 1,666 shares and ain all 2,666 shares at an average terms of lone $37.50. Isn't that wonderful!" So far a "wonderful" loss of $20,000. There is a basic regulation I learned a long clip ago as a flooring trader: NEVER attention deficit disorder TO A LOSING POSITION.

I am in favour of dollar cost averaging, but there is a right manner to make it. Only purchase more than shares as the terms advances. Each purchase should be at a higher terms per share than the former terms per share. This uses to both pillory and common funds. One good stock can do you a very rich person; 1 bad one can set you in the poorhouse.

In 1996 one of the hot pillory was Hub Of The Universe Chicken merchandising in a range of $30 to $40 per share. You could really ain a batch of these shares had you continued to pour in money. It currently is selling at 50 cents per share. And common finances are not exempt. Lexington Troika-Dialog Fund was $24 in 1997. Today it is $3.00 per share. If you had dollar cost averaged UP your lone loss would have got been your first purchase.

Remember the physical object of investment is to do money not ain a batch of shares.