Dollar Cost Averaging: a Wise Strategy for the New Investor

Dollar cost averaging is an investment strategy where regular investments are made into your account or portfolio. Dollar cost averaging can be an ideal plan for the young online investor. It lowers risk, cost and doesn't require big lump sums to be invested all at once.

Despite the fact, that, generally speaking young online investors can afford a bit more risk than those closer to retirement, many of us just don't want to put the work into it. That's okay!

If you're new to online investing here's what you need to do to:

Determine exactly how much you can afford to invest on a weekly or monthly basis. Sharebuilder.com has an automatic investment plan exactly for this purpose. By developing a dollar cost averaging investment plan and setting that plan in motion through a free, basic account at Sharebuilder.com you'll only pay $4 each time you invest! Real time trades via Sharebuilder.com can cost you up to $15.95 per trade! You can see how much money you'll save.

Dollar cost averaging is a long term investment plan; it's not a good way to make a quick buck. It is a good way to secure your financial future. That leads us to the type of investments you want to make. Like all good investment strategies, a key goal is to diversify your portfolio. You do not want to pour $50 a week into one stock for years, goodness only knows the risk you'd face. However, with $50 a week it'd take some pretty rigid and careful planning to create a diversified stock portfolio on your own.

What are your other options?

Index funds; like the S&P 500, the Wilshire 5000, or the FTSE 100. If we take a closer look at the S&P 500, you'll see large capitol corporations and a ready made diversified investment. The idea behind an index fund is that you are investing your money along with others; this enables you to take part in a number of investments that would not be plausible for most individual investors, must less the young, newbie, online investor.