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Health & Fitness

This Way to Wealth - Dip your Toes

There are still far too many investors holding far too much cash in low yielding accounts. We have preached repeatedly that they are actually losing money, since even meager inflation is higher than the return they are getting on cash held in the bank or money market.

An old, but effective investing technique can help to move the fearful from inactivity. It is dollar cost averaging. Most of us are using this technique without realizing it when we invest in our employer's 401K plan. You set aside a certain percentage of your pay with each pay period.

Most of us suffer from poor timing when it comes to investing -- we jump into stocks when they are high and sell when they are low. Dollar cost averaging takes the emotion out of the equation and enables us to buy more shares when prices are low and fewer when prices are high.

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In volatile markets, which we are likely to experience for the foreseeable future, dollar cost averaging actually beats lump sum investing and does so with less fearfulness. Several studies have shown that dollar cost averaging generates higher returns than lump sum investing in this environment.

If markets are falling, this technique works extremely well. You are buying more and more shares at better prices.

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Anything that helps move people away from hoarding cash is worth considering. We have made the banks and money market sponsors fat and happy long enough.

For information on establishing a dollar cost averaging program, please contact anadolna@associatesgroupinc.com.

  Alan Nadolna is a consultant to financial service organizations and is a financial advisor to corporations and individuals. He is a member of a panel of financial experts preparing This Way to Wealth. Your questions are invited by writing to Nadolna at Associates in Financial Planning, 633 Skokie Blvd., Suite 480, Northbrook, IL 60062 or call 800/428-9786 or 847/509-5090.



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