This investment technique may help you take advantage of the downturn.

The central idea: buy low, and sell high. It's the oldest stock market adage, and in the wake of the recent selloff, dollar cost averaging may give you a method to capture lower prices today and come out ahead tomorrow.
How it works. Dollar cost averaging is a long-term investment strategy. It means investing in small increments. Through scheduled investments of as little as $50 or $100 per month, you buy investment shares over time, as opposed to pouring a big lump sum into the market. The method is often recommended to younger investors with longer time horizons, and investors who don't yet have great wealth.

Why it is worthwhile in a bear market. First of all, when the market drops, the investor practicing dollar cost averaging isn't hurt as much as the lump sum investor - as the lump sum investor holds many more shares of the declining fund or stock.

As a consequence of dollar cost averaging, you can now buy in at a lower price - and buy more shares for your money.

So what happens when the market recovers? As the market rebounds, you can pat yourself on the back. You were able to buy at the bottom of the market, and as the market rises, you will have a lower cost basis and you can enjoy the associated gains. All the while, you continue contributing to a fund or stock. (Of course, the fact is that a lump sum investor may profit even more from a market rebound, as he or she may hold comparatively more shares than you.)  

Perhaps most importantly, you stay invested. Dollar cost averaging gives you a regular, passive investment strategy as opposed to market timing. In a volatile market, the active investor can quickly become a frustrated casualty of his or her impulses - and foolishly "abandon ship".

You might call this a tortoise-and-the-hare analogy. The active investor sprinting all over the place for spectacular gains is the hare; you, through dollar cost averaging, emulate the tortoise. It may not be the most exciting way to invest, but in a down market, it is a long-term approach well worth considering.

Learn more. We have witnessed a huge downturn in stocks. The question is … how are you positioning yourself to take advantage of the markets when things rebound? This is a good time to meet with a financial professional - to review or rebalance your portfolio, to look past the headlines of the moment and toward your long-term objectives. If you're not currently practicing dollar cost averaging, you may want to talk about the concept with your representative.

Dirk Dixon is a Representative with Ameritas Investment Corp and may be reached at 515-285-5546 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
 
Citations. 1 sltrib.com/jazz/ci_10613855 [10/2/08]
2 cnbc.com/id/26982338/page/4/ [10/1/08]