What is Dollar Cost Averaging?
Dollar Cost Averaging or DCA is the technique of buying a fixed dollar amount of an investment on a regular schedule, irrespective of the price. The theory being that more shares are purchased when the price is low and fewer shares purchased when the price is high.
The most common examples of this are your 401k and 403b investment plans through your employer. Every paycheck you have a set amount set aside to purchase a predetermined investment at whatever price is currently being offered.
The most common vehicles for the use of this type of investment are mutual funds or ETF(exchange traded funds). Typically these are the choices offered in most employer retirement plans. The best option to look for in mutual funds is a no-load fund.
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The Art of the DRIPs
What are the DRIPs you ask? Well, it is not the dripping of the faucet in the bathroom that keeps you up all night! DRIPs stands for dividend reinvestment plan. Which means that it is a plan that allows investors to reinvest their dividends into buying more shares of that particular company. This is usually done in fractional shares or additional shares.
DRIPs are an awesome way to increase the value of your investment. One of the cool things about this reinvestment plan is that it allows you the ability to buy more shares without paying an additional purchase price. With DRIPs, you don’t receive a dividend check tempting you to cash it out or use it to pay bills. Every penny in dividends is automatically reinvested for you to purchase additional shares of the company. These additional shares produce dividends, too. By allowing the dividends to be reinvested, you tap into the power of compounding growth without ever having to think about it. More on this in a moment.
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