In a 1-page report, explain how the concept of dollar cost averaging applies to the purchase options for mutual funds.

Dollar-Cost Averaging for Investing in Mutual Funds

The constant dollar plan ' or dollar-cost averaging refers to spending a fixed amount of money to invest in a mutual fund at regular intervals ( Dollar-Cost Averaging ' 2009 . When price per unit is low , the investor purchases a greater number of units than when the price per unit is high . An alternative would be to make a large investment at any given time . But , in this scenario , the investor is bound to make a big loss if unit prices suddenly fall ( Dollar-Cost Averaging . Thus dollar-cost averaging reduces

investment risk by smoothing out the ill effects of cost fluctuations ( What is Dollar Cost Averaging ' 2009 According to State Life Insurance which has its own mutual funds : In the end , the average cost per share should be lower than the average share price ( What is Dollar Cost Averaging

Investors in mutual funds must consider the expense ratio as they decide on how much to invest at any given time . This is a fixed percentage of investment paid out to mutual fund managers . An individual who invests 25 must pay the same percentage of his or her dollar amount that another individual making an investment worth 2500 must pay (McWhinney , 2009 . Dollar-cost averaging allows the investor to plan wisely as far as his or her budget is concerned . Yet another advantage of dollar-cost averaging for investing in mutual funds is that the investor may instruct his or her bank to transfer a fixed amount of money at...