Investment using automatical withdrawal
You know how you pay your gas bill, your phone bill, each month using electric billing automatically? This saves on not having to write a check address the envelope each month. Well, why not invest the same way?
There's an addictional benefits to investing small amounts say $50 on a regular basis (also called dollar-cost averaging): You may actually invest more than you would if you plunked down a lump sum, and at more opportune times. When you're dollar-cost averaging, you're putting dollars to work no matter what's going on in the market. You have effectively put on blinders against short-term market swings: Whether the market is going up or going down, $100 (or whatever amount you choose to invest) is going into your fund every month no matter what. That's discipline. Would you be able to write a check for $100 if your fund had lost 15% the previous month? Maybe not. But that would mean $100 less working for you when your investments rebounded.
For example, an investor who put in $600 up front in January would have gotten 60 shares at $10 per share. Those shares were worth $12 in June, so her investment was worth $720. If she had dollar-cost averaged her investment, putting in $100 per month, she would have purchased some of her shares on the cheap and wound up with 62.1 shares in June. At $12 per share, she would have had $745.20--$25 more than if she had invested a lump sum at the beginning.
Be careful about using a dollar-cost averaging program if you use a broker or advisor to buy and sell shares, however. If you're paying a front-end load, you'll pay that amount on each and every investment. Perhaps more important, by making smaller purchases you might not be eligible for sales-charge discounts that are frequently available to those who are investing larger sums.