As you might guess, one of the most common investment questions we receive on our Financial Coaching Line is about when to buy and when to sell investments to maximize returns. My most common answer to that question is that if I knew precisely when to buy securities at the perfect price with perfect consistency, I would be answering that question from my private island. In all seriousness, the up and down nature of investing often causes investors to hit pause on executing their long-term investment plans, which can cause serious harm to their long-term results. Investment paralysis can cause you to miss out on the best returns in the market. If you are looking to buy and hold for the long run, there is a method of purchasing shares that can help you ride out the ups and downs of the market and potentially improve your returns over time: dollar-cost averaging.
The beauty of dollar-cost averaging is its simplicity. All you do is invest the same amount of money in your desired investment on a consistent basis over time (say every two weeks or each month aka when you get paid). When the share price is high, the number of shares you will get for your investment dollars will be lower and when the share price goes down, you’ll get more shares for your money. You might already be using dollar-cost averaging. If you participate in your employer’s 401(k) or other retirement plan, the same amount of money is deducted from each paycheck and then invested per your selections.