Explain Dollar cost averaging?

Question

Instead of paying for the stock all at once in dollar cost averaging is multiple payment. Can you explain me in detail? what about sharebuilder? IS it buying fractional shares until it becomes a complete share?

Answer 1

Dollar cost averaging involves buying stock based on the amount of money that you want to invest, not the number of shares that you want to buy.

With Sharebuilders $4.99/trade that is what you'll be doing, and you will only recieve partial shares based on the amount of money you are investing, and the price of the stock at the time of the trade. The $4.99 is Sharebuilders commission price.

If you want to buy whole shares of stock with Sharebuilder, you can only do that by placing a real time trade, and the commission price will be $9.95/trade, which is quite expensive for only buying one or two shares.

I would not recommend trading with Sharebuilder, unless you want to build up a Roth IRA account, and even then they will charge you an annual maintenance fee of $25.00 even though it's theoretically a self directed IRA.

It's just their way of putting their grubby little fingers into your little piece of the pie.

Keep doing your research into other online brokers and you'll be able to find better ones.

Answer 2

It has the advantage that you are getting an average price over a period of time.  You allocate a certain amount for each purchase as $1000 each quarter for example.  With a mutual fund purchase, yes you can buy fractional shares.  You can buy fractional shares with share builder also.  Some Direct purchase programs also allow purchase of fractional shares.  If you buy stock through a stock broker, you have to buy in whole shares, but you can approximate your cost averaging.  Obviously, it works best with a stock or mutual fund that tends to increase in value over time but which due to market variation may fluctuate in price.

Answer 3

The following  wikipedia site explains Dollar cost averaging"

http://en.wikipedia.org/wiki/Dollar_cost...