Dollar-Cost Averaging in Bond Investing - dummies

Dollar-Cost Averaging in Bond Investing

By Russell Wild

One approach to investing is dollar-cost averaging. Instead of throwing all your money into a bond portfolio right away, some people say it makes more sense to buy in slowly over a long period of time. As the argument goes, you spread out your risk that way, buying when the market is high and when the market is low.

And if you invest equal amounts of money each time, you tend to buy more product (bonds or fund shares) when the market is low, potentially adding to your bottom line.

Dollar-cost averaging makes some sense if you are taking freshly earned money and investing it. If you have an existing pool of cash, however, it simply doesn’t make sense. The cash you leave behind will be earning too little for the whole scheme to make any sense.

If you have a chunk of money waiting to be invested, and you have an investment plan in place, go for it. Buy those bonds you were planning to buy. There’s no reason to wait for just the right moment or to buy in dribs and drabs. (Stocks are different, but stocks, by and large, are way more volatile than bonds.)