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Stock Learning Center | Power
of Compounding
Global Investing | Glossary | Home
A proven profitable strategy that can help long-term investors is called dollar cost
averaging (DCA). If, every week, month, or year, you put the same amount of money into
stocks, you will notice a strange thing happening. You will have bought more stock at
lower prices, and less stock at higher prices, exactly what you're supposed to do as a
good investor. Also, you will have taken the emotion out of investing since you did not
watch the market, but merely bought stock regularly.
Another important strategy is the dividend
reinvestment plan (DRIP). The important letters are "R" and
"I,"which stand for ReInvestment. With DRIP, you can start with a share of
stock. Under this plan, you arrange with the company to use all bonuses (dividends) to buy
more shares without paying a broker’s commission.
The more shares you have, the more dividends you will get. The more dividends you get,
the more new shares you can buy. The loop does not end until you sell your stocks. With
DRIP, your stocks build up quickly. Of course, you do not have to be a math whiz to see
why DRIP works. If you want to see a mathematical demonstration using
the combination of DCA and DRIP, click here.
Stock Learning Center | Power
of Compounding
Global Investing | Glossary | Home
 
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