If You Are Afraid of Flops in the Stock Market, Try to Average the Dollar Value
A stock market plunge like the one we saw this week is natural, and most of us know not to panic and sell . However, it can be intimidating to buy a $ 3,000 fund just to have it completely bankrupt next week. The market always returns steadily, but if you are really worried about these fluctuations, you can try to average the dollar value.
We have written a complete tutorial on dollar value averaging , but in general terms, this is a gradual purchase in the stock market, not all at once in a lump sum. The idea is that you buy more stocks when they are cheap. Investopedia defines it as follows:
The technique of buying a fixed dollar amount of a specific investment on a regular schedule, regardless of the share price. When prices are low, more shares are bought; when prices are high, fewer shares are bought.
Of course, you can do it yourself by paying attention to market downturns and then logging into your investment account to buy funds yourself when prices are low. But many firms will take care of this automatically; you just need to subscribe to this feature.
For example, Vanguard users simply need to go to the Auto Invest section to sign up. You tell them how much you want to deduct from your checking account each month and then tell them how much of that money you want to invest in any assets. Fidelity users can fill out this form , which will allow you to use their own dollar value averaging function, where they will do the same. When you have a certain dollar amount, you will naturally buy more stocks when prices are low and less when prices are high.
It’s worth noting here that many studies show that averaging dollar costs does n’t really matter much over time ; you will probably just as well invest right away because the market is steadily coming back again. But if you can’t get past the downturn, averaging the dollar value can help allay your fears of crazy market swings.