A Brief Overview of the “Dollar-Cost Average” Strategy of Investing
There are hundreds of thousands of investing strategies that you can use to generate passive income and allow your money to grow over a long period of time. With that being said, the majority of people are not looking for an investing strategy that is risky and leaves them in constant fear of losing their money. They would be far better off with an investment plan that allows them to make slow yet steady gains over a long period of time (10+ years).
One of the more popular strategies in stock investing is the
“dollar-cost average” strategy. It will not generate wealth at a massive scale but you will see some decent returns if it is consistently applied.
Dollar-cost averaging involves buying a fixed amount of S&P 500 shares (SPY) at regular intervals. You do not reinvest the dividends and you never sell any of your shares. It is generally accepted that the value of SPY will go up over time due to inflation. Things are going to become more expensive over time and you account for this by purchasing inflating assets.
When you combine the increasing value of SPY with the dividends you accumulate over time, you will receive a return on your investments. Returns can vary depending on the year you look at and they are not impressive in size compared to riskier strategies.
The great thing about dollar-cost averaging is that it only takes consistency and the discipline to stick with it. Most people who get involved in stock investing allow their emotions to dictate their strategy and they fall victim to the volatility of the stock market. You are not wasting your time trying to predict the stock market accurately. It all comes down to the discipline needed to keep repeating the same action day in and day out over several years.
Everybody thinks that they are the next greatest stock trader in the world until the cold reality of the Wall Street market punches them square in the face. You do not need to play this game in order to succeed in stock investing. Stick with the tried-and-true method of dollar-cost averaging and you will be surprised to see consistent returns. Nothing is guaranteed in investing, but there is a good chance that SPY will continue to go up.
Have you ever tried dollar-cost averaging? What was your experience with it? Let us know on social!
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