An investor that follows a strategy of dollar-cost averaging simply invests regularly into the market. For example, an investor following this strategy may decide to invest $100 a month, every month.
The benefit is that the investor can take advantage of a range of prices – they can invest when prices are both low and high. This results in an average investment price that is lower than just investing all at once.
The stock market is often unpredictable and investors can make mistakes with timing, but dollar-cost averaging removes these risks as investments are made regularly, whether prices are low or high.
A disadvantage of dollar-cost averaging is that it cannot be used to know whether an investment is worthwhile or not. You would have to use it in combination with another investment approach.
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