What is Periodic Investment?
Oliver KahnPeriodic investment refers to a method of investing where an individual invests a fixed amount of money on a regular basis, typically monthly or quarterly, into a chosen investment vehicle. ThisInvestment strategyis also commonly known as dollar-cost averaging.
What is Dollar-Cost Averaging?
Dollar-cost averaging is an investment strategy where an individual invests a fixed amount of money at regular intervals, regardless of market conditions. This strategy is based on the idea that investing over a longer period of time can help reduce the overall impact ofMarket volatilityon investment returns.
How Does Periodic Investment Work?
Periodic investment involves investing a fixed amount of money at regular intervals, usually monthly or quarterly, in a chosen investment vehicle. This investment strategy aims to reduce the impact of market volatility on investment returns by leveraging the power ofCompounding.
For instance, suppose an individual invests $1000 in a mutual fund every month. If the price of the mutual fund is high one month, the individual will purchase fewer shares with their $1000. Conversely, if the price of the mutual fund is low, the individual will purchase more shares with their $1000. Over time, this averaging process ensures that the individual's investments are made at different prices, smoothing out the impact of market volatility on investment returns.
Benefits of Periodic Investment
Periodic investment offers several benefits to investors. Firstly, it helps to reduce the impact of market volatility on investment returns, helping investors to achieve better long-term returns. Secondly, it helps investors to build a disciplined approach to investing by investing a fixed amount of money at regular intervals. Lastly,Periodic investmentmakes it easier for investors to manage their cash flow, as they can invest smaller amounts of money over time, rather than investing a lump sum all at once.
Conclusion
Periodic investment is a powerful investment strategy that can help investors achieve better long-term returns by leveraging the power of compounding. By investing a fixed amount of money at regular intervals, investors can reduce the impact of market volatility on investment returns and build a disciplined approach to investing. Ultimately, periodic investment is an excellent way for investors to achieve their long-term financial goals.
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