ANSWERS: 1
  • Dollar cost averaging is a way to try to get a better average price for the purchase or sale of stocks. Method: Say you have 100 shares of GOOG. This is a pretty volatile stock. If you want to cash out you could sell all 100 shares at once, or you could sell 10 shares at a time over, say, a trading day. If GOOG goes up durring the day you'll have a higher average sale price selling 10 at a time over the whole day than if you sold all 100 shares at the start of the day (and a lower sales price than if you sold all 100 at the end of the day). The "Why": People use dollar cost averaging because they know they can't predict the market. It is especially useful for stocks that have higher volatilities compared with other stocks. It can help investors get a better (higher) sales price, or a better (lower) purchase price. It can also result in worse buy/sale prices depending on the direction the market goes. Either way, dollar cost averaging is an attempt to hedge against volatility in your investing.

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