It's Your Money: Dollar Cost Averaging - WQOW TV: Eau Claire, WI NEWS18 News, Weather, and Sports

It's Your Money: Dollar Cost Averaging

MADISON (WKOW)--Playing the stock market can be a crap shoot.  And the first step is the hardest: when do you actually take the leap and buy stocks?

"Things are cheap, so I should get in there now and buy. The fallacy of that is, we don't really know where the bottom is and we don't really know where the top is," says University of Wisconsin financial specialist Michael Collins.

Collins says there are a couple of strategies for investing in the stock market.  One, is trying to time it so you buy low and sell high.

"Market timing is always, at best, a gamble.  Sometimes you'll get it right and sometimes you'll get it wrong."

And, although there's certainly no sure chance of making money on every transaction, Collins says there's another strategy that's proven more profitable than not over time.  It's called dollar cost averaging.

"Every paycheck you're going to invest, say $300 in the market.  You're going to invest it at whatever the price is.  So, over the course of a year it might be up and you don't get very much, and other times the price is down and you get to buy more shares with that same amount of money."

So, you don't worry about the price of the stock, you just keep investing that same amount at the same time, and, history has shown you'll end up on top more often than not.

Collins suggests treating dollar cost averaging like any other monthly payment. 

But, remember, this is just a strategy, not a guarantee.  There's always risk in the stock market.

"It's a gamble, and so why not just dollar cost average and take the average price over time. And not try to get yourself in a bind trying to time the market.  It's a game you'll lose, at best, as often as you gain."

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