Dollar-Cost Averaging

Dollar-cost averaging takes advantage of Wall Street's only certainty: stock and 
bond prices fluctuate. With dollar-cost averaging, you are making the market's 
natural volatility work for you by lowering the average price you pay for your 
shares. Simply put, when you "dollar-cost average," you invest a fixed amount in 
a particular investment at regular intervals. Because the amount you invest remains 
constant, you buy more shares when the price is low, but fewer shares when the price 
is high. As a result, the average dollar amount you pay (your average cost per share) 
is always lower than the average market value of your investment (the average price 
per share). There's no magic to it . . . just simple arithmetic! 

Instead of trying to choose the right time to invest, you can use dollar-cost averaging 
-- a proven investment strategy based on diligence and discipline -- to reduce your 
risk and help you build your investment over time. Dollar-cost averaging is especially 
appropriate for individual retirement accounts (IRAs) or other long-term investments 
-- because the longer you maintain a regular investment program, the more likely you 
will be to buy shares at a wide variety of prices. 

Of course, dollar-cost averaging cannot eliminate the risks of investing in financial 
markets. It does not ensure a profit or protect against a loss in declining markets, 
nor will it prevent a loss if you stop the program when the value of your account is 
less than the cost. You should also consider your willingness and financial ability 
to continue making purchases through good and bad market periods, because the success 
of the program depends on your making regular purchases. Most importantly, there is 
no method of investment that can guarantee a profit if you should decide to sell at 
the bottom of the market. But the patient investor who contributes a fixed amount of 
money in regular installments reduces the loss that would be incurred if the market 
declined sharply just after a single large investment was made.