How to build wealth in mutual funds using dollar cost averaging

Mutual fund

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Dollar cost averaging is one of the most effective ways to build long-term wealth in mutual funds. While it may seem complicated, dollar cost averaging simply means that you invest the same amount of money on a constant plan, regardless of what the stock market is doing. Making those regular investments on a weekly instead of a monthly basis can help you build your mutual fund holdings even faster. You can use this weekly investment strategy to build a portfolio in a number of different mutual fund categories. Each of those categories is described in greater detail in the sections listed below.

Index Funds

Index mutual funds hold all of the stocks in a given index, such as the Standard and Poor’s 500 or the NASDAQ 100. When you buy such a fund, you become part owner of all those companies giving you a greater level of diversification than you could achieve on your own. Making weekly investments into your favorite index mutual fund allows you to build up a greater number of shares more quickly, helping you grow your portfolio for the future.

Growth Stock Funds

Investing money weekly in a growth stock fund allows you to profit from the inherent volatility of the stock market. The net asset value of a growth stock fund can bounce around quite a bit in response to the daily gyrations of the stock market. By making weekly purchases, you can accumulate more shares during periods of stock market weakness, and that can give you a good profit when stocks pick back up again.

Bond Funds

If you need to beef up your bond portfolio, you can do so with weekly transfers from your bank account to the bond mutual fund of your choice. You can choose from a variety of bond funds, from safe government bond funds to corporate and high-yield funds. The type of bond fund you should choose depends on a number of factors, including your risk tolerance and your need for current income.

Exchange Traded Funds

While exchange traded funds are not technically mutual funds, they do have a lot in common with those financial instruments. For instance, the ETF that trades under ticker symbol SPY tracks the performance of the Standard and Poor’s 500 index, just like an index fund does. Many brokerage firms now allow customers to make commission-free trades in the ETFs they offer, and that allows investors to buy ETFs as often as they would like. You can set up a weekly transfer from the cash account at your brokerage firm, or your bank account, into the ETF of your choice.

Investing consistently over time is one of the best ways to build long-term wealth for the future. By implementing a weekly strategy of saving and investing, you can reach your financial goals that much more quickly.

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