Portfolio Strategy Alternatives to Diversification
Diversification dominates most discussions of market strategies. You need to spread risks while managing profits and losses, meaning constant monitoring and rethinking of past decisions. That is the nature of investing, and in uncertain markets, diversification is essential.
Beyond the need to spread risks, additional strategies can be very useful. Among these is (DCA), a method of placing a fixed dollar amount into the market periodically. The theory behind DCA is that the averaging effect reduces risk and is beneficial over the long term.
Under this plan, you pay in the same amount each period (monthly, for example).
Key PointDollar cost averaging is a formula for investing the same amount periodically. It is a strategy, and there is no guarantee that DCA investors will always make a profit.
[caption id="attachment_12685" align="aligncenter" width="515"] Dollar cost averaging, rising market[/caption]