Drip Net
A guide to dollar cost averaging

One of the best things about Drips is that they gives you the perfect platform to dollar cost average into your stock portfolio position. In other words, if you commit to making a subsequent investment of, say, $100 a month, you will benefit no matter which way the stock moves. If it heads lower you will be able to buy more shares with that same investment. If the stock head higher -- hey -- why complain about that?

That's the principle behind dollar cost averaging. Does it sound confusing? It shouldn't be. Let's say you will be investing $100 a month into a stock through its (hopefully) fee free plan. If the stock is at $50 one month your $100 will buy you 2 shares. If the next month the stock falls all the way down to $25, your next $100 will buy you 4 shares instead. So if the stock were to move back to $50 the following month you would have spent $200 on 6 shares that are now worth $300.

Of course, there is no guarantee that stocks will ever rise. Flip the argument around -- to where the stock doubled in the second month before falling back down and you would have paid $200 for only 3 shares, then worth $150.

However, it's a solid strategy. At the very least it will make bear markets and stock corrections easier to take as long as you still believe that your investment will appreciate in the long-term.