Finances

Scared to invest? Try dollar cost averaging

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Many students in school or right out of school are afraid to invest their money.  With not much knowledge in the area, it can be a daunting prospect.  However, if you have a brokerage account or an IRA started while you are in school, there is one way that you can invest money without having an investment background.  Dollar cost averaging is a method used where you invest a set amount at set intervals over time.  Not only does this method spread risk, but it is easy to budget for the amounts invested.  If you invest the same fixed amount in the same stock or mutual fund each month then you are very likely to see good returns over time.  When choosing what to invest in, choose stocks or funds that you at least know something about- like a dental supply company or the like.  Here is an example:

MUTUAL FUND: ABC FUND

Plan: Invest $100 per month in the ABC FUND

Trading At:             # shares bought                 Total Cost

5/1/2013       $20.00/share                       5                                $100.00

6/1/2013       $5.00/share                         20                              $100.00

7/1/2013       $10.00/share                       10                               $100.00

  35                               $300.00

Total Shares owned at 7/1/2013 = 35

Value at 7/1/2013  x  $10.00    per share = Total value

Total Value on 7/1/2013               $350.00

Total Cost to You                            $300.00

Net Gain after 3 months               $50.00

Return on Investment = $50/$300 = 16%

~Megan Mathers (Hille), JD, accountant at Pesavento & Pesavento

Megan Mathers

Megan is an accountant and tax attorney with Mathers Law, a firm focused on providing accounting, tax, business advisory and legal services to the dental and medical communities. Megan earned her Bachelor's Degree in Accounting from Marquette University and her law degree from Loyola University Chicago School of Law. Megan's practice focuses on tax compliance, tax planning and wealth and estate planning.

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1 Comment

  1. James says:

    I hadn’t thought of these sorts of investments in this way, so I really appreciate seeing a post that really breaks down for the layman. I’ve been trying to understand the investment world by reading things like http://www.mutualfundstore.com/dollar-cost-averaging, so I think I’m getting some of it, but your breakdown really helps clarify stuff.

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