The Three “Ds” of Investing
A good way to keep your focus on your goals is to remember the three “Ds” of investing: Dollar-Cost Averaging, Discipline and Diversification.
Dollar-Cost Averaging: Dollar-cost averaging means investing a certain fixed amount each month, regardless of what’s happening in the stock market. This
eliminates having to predict when to invest as you will be able to take advantage of the market highs and lows – by purchasing fewer units when the prices are high and more units when the prices are low. While dollar-cost averaging can’t assure a profit or protect against loss, it does show how a systematic investing plan, sustained over a period of time has the potential to pay off, relieving your worries about whether the market is up or down.
Discipline: By staying focused and staying invested through all market activity, you can increase your long-term potential because missing even a handful of the best-performing days in the market over time can considerably diminish your returns. Experts say market “timing” is a bad way to invest. The key is to maintain a long-term view and stay focused on your goals.
Diversification: Because there is no single, perfect investment, take advantage of the next best thing which is to build your portfolio by balancing a variety of investments. Together these investments help you achieve your goals and reduce your portfolio’s risk. This may also work to increase returns by offsetting losses in one asset class with an opportunity for gains in another. Diversification does not asssure a profit or protect against loss.
Who Do You Think
Earned More Money?
Investor A began purchasing his shares
as the market soared. Right after Investor B
started purchasing his shares, the market fell
and then recovered to where it was at the
beginning of his investment period.
If you picked Investor A, you’re wrong!
Investor B was able to take advantage of the
downturn in the market and use his $50
monthly investment to purchase shares at
a lower price, which meant more shares
purchased. With his $300 investment he
purchased 76.67 shares at an average price
of $3.91 per share.
Investor A’s $300 investment
purchased 24.90 shares at an average
price of $12.05 per share. In a fluctuating
market, Investor B was able to accumulate
more shares at a lower price than Investor A
did in a rising market.
That’s the power of dollar-cost averaging!
Primerica:How Money Works