“It’s tough to make predictions, especially about the future.”
So said Yogi Berra, whose tendency toward malapropisms arguably made him more famous than his exploits on the baseball field, which earned him a spot in the Hall of Fame.
Nonetheless, he was right. It is tough to make predictions, and yet investors must find some way to anticipate future events if they are to be successful. Fortunately, there is a method for investing in mutual funds that can help stem the risks associated with portfolio decision making.
This method, called dollar-cost averaging, involves investing a fixed amount in an investment at regular intervals. Because mutual fund share prices fluctuate on a daily basis, this method ensures that an investor buys more shares when prices are low and fewer shares when prices rise. As you can see in the table, the result can be a lower average cost per share.
Dollar-cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of fluctuating prices. You should consider your financial ability to continue making purchases during periods of low and high price levels. However, this can be an effective way for investors to accumulate shares to help meet long-term goals.
The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.
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