Dollar Cost Averaging
Dollar cost averaging is one of the most popular ideas in the investment community. Everyone seems to like it and it has become a watchword among stock and mutual fund brokers. If it is properly done you will make money, if not you will lose money or at best stay even. Let's examine the basic premise behind this method of investing. You decide to buy shares in Mouse Trap, Ltd.(symbol CHZ), a computer company that produces sophisticated hardware. The shares are now selling for $40 and you want to purchase approximately $1,000 worth each month. Today you buy 25 shares. Next month the stock has gone up to $43 so your purchase is 23 shares (I'm rounding these off because you can't buy fractions of shares.) The following month it drops back to $40, you get 25 more. Then at $37, you have 27 shares. At $35, 28 shares. At $32, 31 shares. You have invested $6,000 and have 159 shares at an average cost of $37.75. With the current price of the Mouse Trap at $32 you have a loss of almost $1,000 (159 X $32 = $5,088). The object of buying any stock or mutual fund is to have more money than you put in, not more shares and less money. Who came up with this anyway? Many years ago a broker talked his client into buying a thousand shares of Gravy Train (symbol EZSt) at $50 per share. In 30 days Gravy Train had spilled down to $30 and the broker didn't want to tell his customer the bad news, but he had to call him so he came up with this: "Great news, Mr. Mushroom, Gravy Train is now at $30. If you buy another $50,000 worth you can get 1,666 shares and own all 2,666 shares at an average price of only $37.50. Isn't that wonderful!" So far a "wonderful" loss of $20,000. There is a basic rule I learned a long time ago as a floor trader: NEVER ADD TO A LOSING POSITION. I am in favor of dollar cost averaging, but there is a right way to do it. Only buy more shares as the price advances. Each purchase should be at a higher price per share than the previous price per share. This applies to both stocks and mutual funds. One good stock can make you a very rich person; one bad one can put you in the poorhouse. In 1996 one of the hot stocks was Boston Chicken selling in a range of $30 to $40 per share. You could really own a lot of these shares had you continued to pour in money. It currently is selling at 50 cents per share. And mutual funds 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 only loss would have been your first purchase. Remember the object of investing is to make money not own a lot of shares. Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2005 al@mutualfundstrategy.com; 1-888-345-7870 |
Other Online Trading Articles
Forex Brokerage Firms Foreign exchange brokerage firms play a crucial role in currency markets. They provide momentum to currency markets in various ways, such as by offering an interface to sellers and buyers of currencies and by executing transactions at their behest. They also offer margin account services, under which small traders can take much larger positions ...Online Forex Trading - Making Money Has Never Been Easier In the past most, if not all Forex trading was limited to banks and huge financial institutions and would have benefited a lot from online trading. Lately however, with the increase in the availability of the Internet, web-based Forex trading has become a reality. This makes it possible for hundreds, perhaps thousands of individuals, brokers, br ...Investing In Foreign Currencies - The FOREX Building a diversified portfolio gives you a lot more stability with your investments and enables you to keep on the profit side of things more easily. But if you already have a rather diversified portfolio and think you are now rather knowledgeable of the stock market, then you may be ready to expand your investments into FOREX - the foreign ex ...Make More Money Trading Tommorrow Several years ago I was in search of trading that was as simple to understand and execute as possible. I had researched so many systems in 10 years of studying and trading and one thing they all had in common was complexity and vagueness. Everyone that claims to have the holy grail says it is a no brainer but when you start to dig into the nuts ...Forex Trading Courses To put things simply, Foreign Exchange (FOREX) Trading is the buying and selling of international currencies. Just like any other work you engage in, you need to have a basic knowledge on what makes the industry work and how it works, in order to make decisive analysis and intelligent decisions on each transaction. If you do not have any idea on ...Is Daytrading Right For You? Many new market participants are lured in by the glamour of daytrading. We hear of great stories of day traders making a sizable income, working only a few hours a day, and playing golf every weekend. With the fancy advertisements of brokers and data vendors, it is easy to get sucked in without really understanding what day trading is all about. ...Is The FOREX The Market To Trade Your Way to Riches? Ever watch the news and see the ending FOREX trades of the currency markets? They're usually based on how individual currencies traded against the dollar. FOREX is the abbreviation for the Foreign Exchange market. FOREX is a market where the value of individual currencies from all over the world are traded. The currency market today began in ...Can you buy Shares of Verizon Now? Approximately one week away from Verizon’s (VZ) third quarter results, many investors are speculating whether to purchase shares of this lucrative telecommunications giant. In search for answers by examining earnings from other powerful monsters, there is a mix bag in terms of what to expect for both Verizon and the telecommunication industry in ...Swing Trading Systems Swing trading systems capitalize on the oscillations experienced in the stock prices. In this style of trading, the returns on a stock can be gained in few days or within a week or two. Traders employing this style can leverage on the short term stock movements without fearing any stiff competition from the big players in the market. Swing tradi ...Don't Short-Change Yourself by Not Understanding Money Exchange Rates One pesky problem you may encounter while on vacation in a distant country is the varying value of currency. Your vacation will be more relaxing if you are familiar with the intricacies of money exchange rates. Every country has its own monetary system, meaning their currency is different than yours and its value fluctuates constantly. For insta ...Forex Currency Trading Systems Everybody wants to make quick money, and there is no other legitimate market like forex trading, where you can build a fortune, if you are lucky enough, in a matter of minutes or even seconds. Also, forex trading is a legitimate business, and there is no stigma attached with as there is with gambling, though practically speaking, trading in curr ...Low Expense Ratio One of the big advertising kicks today from mutual funds is to tell how low their expense ratio is and that you will make a great deal more money if you buy and hold with them. Partly true, but that is not the whole story.What is the expense ratio? It is all their overhead including but not limited to all the managers and other employees ...Bonds - Investing in Bonds for a Secured Future There may have been more than one occasion when you might have had to borrow money from a friend: at the coffee shop, in the office, or even for the cab service. When you run out of money, borrowing is usually your only way out. Juxtaposing the same with big corporations and the federal government, one would find it is not that easy for them. No ...Forex Trading Style: 7 Essential Indicators You Need When developing your own forex trading style, there is a danger in becoming fascinated with indicators. The newer trader experiments with one, finds it doesn’t work so well, then switches to another, then another, etc.The list below highlights 7 key indicators that can be woven into your forex trading style. You may not need to go any fur ...A Guide to Forex Courses For anyone interested in forex trading, education is essential. There are many online forex courses. There are “home-study” programs, seminars, “webinars”, books, DVDs, free demo accounts and more. In fact, with all the information that is out there, it would be silly to begin trading without first educating.Some of the best sites will, ...The ABCs of the Stock Market A recent study indicates that Americans are saving less these days than they were 10 years ago, except for entrepreneurs and corporate executive and in one particular segment – young middle-managers who are about six to 10 years into their careers and only beginning to make headway into the higher echelons of their particular industry.Are ...E Currency Exchange Scam Are you sick and tired of those HYIP programs that claim you will get rich or make millions fast? I know I just had enough of them that is why I did my homework and researched the best work at home programs on the internet.E currency was the business that everyone referred me to. So I found a book that taught me how the e currency exchang ...The Monster Traffic Way Of Currency Exchange In the advent of globalization, “the name of the game” is not money alone. Can we include currency exchange? In historical times, the mode of exchange is by bartering a valuable object with the desired other object. Currently, this may exist informally but vaguely, an item for sale would more or less be worth a sum of money.But as the ...Online Futures Trading - Advantages and Disadvantages What Is Online Futures Trading?A futures contract is an agreement to buy or sell a commodity at a date in the future. Everything about a futures contract is standardized except its price. All of the terms under which the commodity or financial instrument is to be transferred are established before active trading begins, so neither ...Commodity Trading – Make Money Fast In 5 Simple Steps This article is all about trading commodities for big profits and how to make money fast.We will outline the best method and the best commodities to enable you to have big profit potential, so let’s get started.Commodity trading covers a variety of areas including currencies, stock indices, energies bonds and a variety of soft comm ...Forex Options Market Overview The forex options market started as an over-the-counter (OTC) financial vehicle for large banks, financial institutions and large international corporations to hedge against foreign currency exposure. Like the forex spot market, the forex options market is considered an "interbank" market. However, with the plethora of real-time financial data ...Trading in the Forex Requires Some Caution Whether it is in the millions or thousands, trading in the Forex is a bit risky. There are a lot of players involved and if you don’t arm yourself properly with knowledge about the Forex you may just get swamped.The Forex is the largest most vibrant market in the whole wide world. The financial world has never had a market that involves s ...Do You Want to Learn FOREX Trading? The Foreign Exchange Market (FOREX) has no central exchange location yet it is the largest financial market in the world. It is over 3x's the size of the stock and futures markets combined and operates via an electronic network of a banks, corporations and investors.Foreign exchange consists of a simultaneous buying of one currency and se ...What is an Online Forex Trading? For-ex stands for Foreign Exchange; it is a global market for dealing currencies at floating exchange rates. The foreign exchange is world’s biggest currency market, on an average everyday dollar one to two trillion is traded in the foreign exchange. The trade is mostly done over the internet and telephone lines. Online forex trading is a fast, ...Forex Brokers & Online Trading There is one important thing you will need to do before you start your Forex trading career. This is, you will need to set up an account with what is known in the trading world as a Forex Broker. Once you start your search for the perfect broker, you may feel there are too many of them who offer their services online. Deciding on a broker requ ...Trading with Support and Resistance Support and resistance has long been a staple in trading indicators. Support and resistance is a simple concept that has its roots in the supply and demand theory. When looking at a chart you see price action that appears to be random but, by adding support and resistance theory to the equation you will see that the price movements are not alway ...Emotional Involvement I'll bet with almost anyone that has stocks or mutual funds in his portfolio that he has losers, but he won't sell them because he "likes them" or some similar excuse. This is the philosophy of a loser.You cannot become emotionally involved with anything you have bought whether it is stocks, mutual funds, collectibles, real estate, etc. e ...Forex Trading 'Must Do': Instant Guide For Forex Beginners It is believe that more than 50% of Forex traders are losing money long term in the foreign currency exchange market. Yet, there are still a lot of Forex traders jump in to the market, trade blindly and lost their money. Trade after trade, its surprising to see that 'normally-losing' traders keep betting (not investing!) their money into Forex m ...Forex Charting - It's Not As Hard As You Think When becoming a Forex trader you can definitely use great tools available to you, such as Forex charting. The charts produced by Forex analysis can give you great insight into different aspects of the market, including movements. By using charts in foreign exchange you can study the behavior of the market over a greater amount of time and analyz ...Defining Municipal Bonds One of the main problems with traditional investing is that you seem to have to either settle for a lower yield on local business investments or give up the interactivity of knowing and influencing the factors that affect your investment by purchasing shares in worldwide companies or bonds created on a national level.Luckily, there is an ...The Top Four Forex Brokers This article contends that the best forex brokers are: Saxo Bank, GAIN Capital, GCI Financial Ltd., and CMS Forex. CMS Forex accepts no commission, demands a small amount of only $200 to establish a mini account, provides users with a Free Demo account, provides leverage as high as 400:1, and has a 3 to 4 pip spread on major currencies.S ...Truth About Fund of Funds First let’s understand what a fund of funds is as I seriously doubt your broker has ever told you about them. Why? Because it will take away from his commissions. A regular mutual fund is composed of stocks or bonds. An index funds such as the S&P500 is composed of 500 stocks while a sector fund might have only 20 or 30 stocks. Almost all mutual ...How To Really Start Making Money With FOREX Trading If you've been checking out ways to get started in investing, chances are you've heard about the foreign exchange market, or FOREX trading. If you're unfamiliar with this type of trading, it can all seem a bit too hard, but in fact the hardest part is getting started. Keep reading to find out the basics of FOREX trading and what you need to do ...Stock Market Movements - Short Term vs. Long Term The movements of the stock market can be very dynamic and swift or very steady and methodical. This often depends on the time frame you are referencing. The shorter the time reference, the more choppy and irrational stock movements appear. The longer the time frame the more smooth a stock's price movement becomes. The reason for this is that ...
|
