When the market is this rough, how you buy fund shares can be almost as important as which fund you buy.
| Other Junk |
| No Redemption: How Growth/Tech Funds Could Sink the Market |
| 10 Questions with Firsthand Funds' Kevin Landis |
| Hocus Focus: The Downside to Focus Funds |
| The Low-Maintenance Portfolio |
-- rather than buying a big slug of fund shares at today's price.
In short, dollar-cost averaging doesn't guarantee a profit, but it does reduce your risk. Investing the same amount each month ensures that you're buying more shares when prices are low and fewer shares when prices are high, essentially the way we all invest in our 401(k) accounts, where a set percentage of cash is yanked out of every paycheck. The idea is that you won't buy at the bottom or the top; rather, your cost basis or average share price will be in between. It has always been a favorite among folks without a lot of cash to put to work, but it makes sense for a lot of modest and moneyed investors alike. | Smoothing the Road As this hypothetical model shows, investing the same amount each month, or dollar-cost averaging, can dull the barbs of a volatile market | |||
| Shares Bought: Lump-Sum Investment | Monthly Share Price | Shares Bought: Dollar-Cost Averaging | |
| 12 | $10 | 1 | |
| 9 | 1 | ||
| 8 | 1 | ||
| 7 | 1 | ||
| 8 | 1 | ||
| 7 | 1 | ||
| 7 | 1 | ||
| 9 | 1 | ||
| 8 | 1 | ||
| 9 | 1 | ||
| 10 | 1 | ||
| 10 | 1 | ||
| Value: $120 | Value: $120 | ||
| Cost Basis: $10 | Cost Basis:$8.5 | ||
| Return: 0% | Return: 15% | ||
| Slow and Steady A $5,000 investment on Jan. 1, 2000, vs. the same investment broken up into monthly investments | ||
| Fund | Lump Sum/Cost Basis | Dollar-Cost Averaging/Cost Basis |
| (PRSCX)T. Rowe Price Science & Technology | $3,785/ $58.93 | $4,125/ $53.94 |
| (VFINX)Vanguard 500 Index | $4,708/ $135.29 | $4,839/$131.13 |
| (FMAGX)Fidelity Magellan | $4,547/ $140.25 | $4,632/$135.88 |
| Source: Morningstar. Returns through Jan. 31 and taking funds' expenses into account. | ||
| The Roaring '90s A $5,000 lump sum investment 10 years ago, vs. plunking down $2,500 and the other $2,500 in monthly investments | ||
| Fund | Lump Sum/Cost Basis | Dollar-Cost Averaging/Cost Basis |
| (PRSCX)T. Rowe Price Science & Technology | $51,930/ $26.03 | $34,827/ $27.37 |
| (VFINX)Vanguard 500 Index | $25,637/ $38.55 | $14,983/$45.69 |
| (FMAGX)Fidelity Magellan | $26,508/ $74.71 | $19,189/$79.32 |
| Source: Morningstar. Returns through Jan. 31 and taking funds' expenses into account. | ||
TheStreet Premium Services For Personal Service: 877-471-2967
Jim Cramer's Action Alerts PLUS:
Trade right alongside a Wall Street pro — enjoy access to his Charitable Trust portfolio and be sent trade alerts BEFORE he makes a move. Learn MoreETF Profits:
Get money-making ideas from the hottest investment vehicle on the planet. Our experts show you how to play various ETF sectors to help pump-up your portfolio. Learn MoreOptionsProfits:
Get 50+ trade ideas a week from the industry's top options experts. Plus — exclusive commentary on market trends and essential trading tools. Learn MoreReal Money:
Our team of professional Wall Street Pros — including Jim Cramer, Doug Kass, and Nicholas Vardy — delivers intelligent analysis, timely trade ideas, and colorful commentary. Learn MoreStocks Under $10:
Break into the market with small- and mid-cap stocks... all $10 or less! David Peltier tells you exactly which low-priced stocks he's buying and selling. Learn MoreTo begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
blog comments powered by Disqus
| Dow Jones | S&P 500 | NASDAQ | 10-Year Note | |
|---|---|---|---|---|
| 12,801.23 | 1,342.64 | 2,903.88 | 19.69 |
Oil *
117.67
|
|
DOWN
89.23 |
DOWN
9.31 |
DOWN
23.35 |
DOWN
0.78 |
10 Yr
1.97%
SPDR Gold
167.14
|
|
-0.69%
|
-0.69%
|
-0.80%
|
-3.81%
|
Data delayed 20 minutes |

Connect with TheStreet