Dollar Cost Averaging is a fancy term for a simple idea:Invest the same amount of money every month (or week, or quarter, etc.) in the same investment vehicle (e.g. a indexed mutual fund) such that your dollars buy more shares when the price is cheap (the stock market declines) and fewer shares when the price of the fund is expensive (the stock market increases).
This approach ensures that you are essentially always "buying low". Later in life you can "sell high" - this a good milestone on the path to wealth.
This method helps reduce the risk of dumping all your cash into the market at once and then watching the market tank over the short term. Over the long term the market has shown to go up. This way you reduce your downside risk and maximize your upside potential.
Go ahead and setup your Roth IRA contributions or 401k contributions for automatic investments each month and sound like a Real Genius by tell all your friends: I invest using dollar cost averaging techniques - it's the only way to go!
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