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Dollar Cost Averaging

    Dollar Cost Averaging is a great way to consistently beat the market with minimum risk.  What does this "averaging" actually mean anyway?

    It is basically buying the shares of great companies in small chunks every month, as opposed to buying them a single lot. This protects you against the fluctuations of the market.

    Since you buy every month, the market movements always work in your favor. If the stock price goes down during a particular month, you get to buy more shares for the same money. If the stock price goes up then, you are a happy camper as the value of your entire holdings goes up.

   Some people may argue like this. "Hey, I know what stocks to buy and at what time. That way I take the maximum advantage of my abilities to pick stocks". Well, sorry to say, you can not do that on a consistent basis.

   If you do NOT do dollar cost averaging you lose on two counts:

1) A risk of paying high price at the time of your purchase.

2) A bigger risk of losing buy opportunities when the price goes low.

What about transaction costs?

    You may wonder if all this buying results in a over head of commissions to the broker. It is a fair concern. However fortunately they are companies like ShareBuilder.com (http://www.ShareBuilder.com) that let you buy shares with low transaction costs.

What Kind of Companies to Buy?

   You should buy companies doing business in profitable niches, with sustainable earnings, strong brand franchise and great management. The topic stock selection  would be discussed in its own section greater detail.