at predetermined intervals and set amounts. Many successful investors already practice without realizing it.

If you participate in a regular savings plan, you are already using this tool. Many others could save themselves alot of time, effort and money by beginning such a plan. Dollar cost averaging can lower an investor's cost of investment and reduce his risk of investing at the top of a market cycle. The beauty of dollar cost averaging is that you buy more shares when prices are low and fewer shares when prices are higher. The result is an average cost that is better than trying to time the market with your investments. What is Dollar Cost Averaging Instead of investing all his money at one go, the investor gradually builds up a position by purchasing smaller amounts over a period of time. This spreads the average cost over the period, therefore providing a buffer against market volatility. In order to begin a dollar cost averaging plan, you must do three things: Decide exactly how much money you can invest each month. To be effective, you should have sufficient funds to continue investing through the market cycle. Select an investment (index funds are particularly appropriate) that you want to hold for the long term, preferably five to ten years or longer. At regular intervals, weekly, monthly or quarterly, invest that money into the security chosen. An example of a Dollar Cost Averaging Plan Here's how it works. The principle is simple: Invest a fixed amount of money in the market at regular intervals, such as every month, regardless of whether the market is up or down. Let's assume you have $12,000 and you want to invest in a stock. You have two options: you can invest the money as a lump sum now, walk away and forget about it, or you can set up a dollar cost averaging plan and ease your way into the stock. You opt for the latter and decide to invest $1,000 each month for one year. Assume further that the stock started at $10 per unit and reaches $16 per unit a year later. Had you invested your $12,000 at the beginning, you would have purchased 1,200 shares at $10 each. When the stock closed for the year in December at $16, your holdings would only be worth $19,200! Had you dollar cost averaged into the stock over the year, however, you would own 1,643 shares as shown in Table 1; at the closing price, this gives your holdings a market value of $26,228. Why Dollar Cost Averaging Works The system works because it takes the emotion and temptation to time the market out of the process. You establish an amount that is comfortable for you to invest and let the market work for you. The system takes the decision-making elements of how much to invest and when to invest out of your hands. Dollar cost averaging solves this problem by eliminating the need to predict an entry point. Chart 1 shows what happens when you invest $1,000 per month for twelve months in an investment that fluctuates in price. The average market price per unit is $8.08. Look at Table 1, your average cost per unit = $12,000/1,643 which is approximately $7.30. Thus, the example shows that you don't have to guess when to purchase shares to get a better price. Will dollar cost averaging guarantee you a profit? No system can do that. However, if you buy quality investments and continue dollar cost averaging over a long period, you will have a much better chance of success than trying to get in and out of the market at the right times.

Buy Low, Sell High For long-term investors, dollar cost averaging is a powerful tool that takes much of the emotion out of investing and lets the market work for you. One of the major problems facing individual and professional investors alike is determining when to buy a particular stock or, in other words, how to find the bottom of a price swing. The problem is that no one is consistently correct in calling this point on individual stocks and certainly not on the whole market. If you miss this point and the stock begins to move up, you have lost some of the potential gain by not buying at the right point. Very few people buy at the bottom. Those who do, typically happen to have been averaging all the way down. Market timing is a dangerous game, especially when practiced by beginners, who typically tend to over expose themselves to the market. Market timing is an attempt to predict future price movements through use of various fundamental and technical analysis tools. The real benefit of knowing what is going to happen is that your return from buying a stock before it takes off is better than if you had bought the stock on its way up. Market timers are the ultimate "buy low and sell high" traders. Day traders, who move in and out of positions in minutes or hours, are the extreme market timers. They look for small profits by the dozens each day by capitalizing on swings in a stock's price.Most market timers operate on a longer time-line, but may move in and out of a stock quickly if they perceive an opportunity. There is some controversy about market timing. Many investors believe that over time you cannot successfully predict market movements. Market timing becomes more of a gamble in their opinion than a legitimate investing strategy. Market Timers and the Next Big Thing Some investors argue that it is possible to spot situations where the market has over or under valued a stock. They use a variety of tools to help them predict when a stock is ready to break out of a trading range. Usually, the market proves them wrong. Stock prices do not always move for the most logical or easily predictable of reasons. An unexpected event can send a stock's price up or down and you cannot predict those movements with charts. The Internet stock bull market of the late 1990s was a good example of what happens when investors in the excitement of the moment, consciously or not, overpay for their investments. Those who bought then are not likely to have made much money. Everyone has a hot tip about the next "big thing" and investors are always jumping on stocks as they shoot up. Unfortunately, most of these collapse just as quickly as many investors typically hold on way too long. The disastrous result is usually the exact opposite of what they were hoping for. In the end, it is usually a case of "buying high and selling low". For most investors, the safer path is sticking to investing in solid, well-researched companies that fit their requirements for growth, earnings, income, and so on. In conclusion, dollar cost averaging takes the emotion out of decision-making and is a useful tool for the individual investor who wants to buy and hold a stock for the long term. Over time, it will usually result in a better entry price than timing when to buy. If you look for undervalued stocks, you may find one that is poised for moving up sharply given the right circumstances. This is as close to market timing as most investors should get. p Now For Our Proven Picks! Red-Hot Penny Stocks www.PennyStockWizard.com Fast Double-Digit Gains from Today's Hottest Penny Stocks!

Preferred Penny Stocks www.Preferredpennystocks.com Don't Miss The Next Penny Stock To Take Off. Get Our Free Alerts! Stocks Ads Investing in Stocks Buy Stocks Trading Stocks Stocks Money Stock Market Investment For long-term investors, dollar cost averaging is a powerful tool that takes much of the emotion out of investing and lets the market work for you. One of the major problems facing individual and professional investors alike is determining when to buy a particular stock or, stated another way, how to find the bottom of a price swing. This is the time to jump in and buy, since the price should only go up from this point. The problem is that no one is consistently correct in calling this point on individual stocks and certainly not on the whole market. Cost Flow Methods The cost of items remaining in inventory and the cost of goods sold are easy to determine if purchase prices and other inventory costs never change, but price fluctuations may force a company to make certain assumptions about which items have sold and which items remain in inventory. There are four generally accepted methods for assigning costs to ending inventory and cost of goods sold: specific cost; average cost; first-in, first-out (FIFO); and last-in, first-out (LIFO). Each method is applied to the information in the following illustrations, summarizing the activity in one inventory subsidiary ledger account at a company named Zapp Electronics. January 1 Beginning inventory100 units @ $ 14/unit March 20 Sale of 50 units April 10 Purchase of 150 units @ $16/unit July 15 Sale of 100 units September 30 Sale of 50 units October 10

Purchase of 200 units @ $ 17/unit December 15 Sale of 150 units December 31 Ending Inventory100 units The cost of goods available for sale equals the beginning value of inventory plus the cost of goods purchased. Two purchases occurred during the year, so the cost of goods available for sale is $ 7,200. Units Per Unit Cost Total Cost Beginning Inventory 100 $ 14 = $ 1,400 + PurchaseApril 10 150 $ 16 = 2,400 + PurchaseOctober 10 200

$ 17 = 3,400 = Cost of Goods Available for Sale 450 $ 7,200 Specific cost. Companies can use the specific cost method only when the purchase date and cost of each unit in inventory is identifiable. For the most part, companies that use this method sell a small number of expensive items, such as automobiles or appliances. If specially coded price tags or some other technique enables Zapp Electronics to determine that 15 units in ending inventory were purchased on April 10 and the remaining 85 units were purchased on October 10, then the ending value of inventory and the cost of goods sold can be determined precisely. Units Per Unit Cost Total Cost + PurchaseApril 10 15 $16 = 240 PurchaseOctober 10 85 $17 =

1,445 Ending Inventory 100 $ 1,685 $ 7,200 Cost of Goods Available for Sale $ 7,200 - Ending Inventory (1,685) = Cost of Goods Sold $ 5,515 Since the specific cost of each unit is known, the resulting values for ending inventory and cost of goods sold are not affected by whether the company uses a periodic or perpetual system to account for inventory. The only difference between the systems is that the value of inventory and the cost of goods sold is determined every time a sale occurs under the perpetual system, and these amounts are calculated at the end of the accounting period under the periodic system. Check the value found for cost of goods sold by multiplying the 350 units that sold by their per unit cost. Units Per Unit Cost Total Cost Beginning Inventory 100 $ 14 = $ 1,400 PurchaseApril 10

135 $ 16 = 2,160 PurchaseOctober 10 115 $ 17 = 1,955 Cost of Goods Available for Sale 350 $5,515 Companies that sell a large number of inexpensive items generally do not track the specific cost of each unit in inventory. Instead, they use one of the other three methods to allocate inventoriable costs. These other methods (average cost, FIFO, and LIFO) are built upon certain assumptions about how merchandise flows through the company, so they are often referred to as assumed cost flow methods or cost flow assumptions. Accounting principles do not require companies to choose a cost flow method that approximates the actual movement of inventory items. Average cost. Companies that use the periodic system and want to apply the same cost to all units in an inventory account use the weighted average cost method. The weighted average cost per unit equals the cost of goods available for sale divided by the number of units available for sale. For Zapp Electronics, the cost of goods available for sale is $ 7,200 and the number of units available for sale is 450, so the weighted average cost per unit is $ 16.

The weighted average cost per unit multiplied by the number of units remaining in inventory determines the ending value of inventory. Subtracting this amount from the cost of goods available for sale equals the cost of goods sold. Cost of Goods Available for Sale $ 7,200 - Ending Inventory (100 $ 16) (1,600) = Cost of Goods Sold $ 5,600 Check the value found for cost of goods sold by multiplying the 350 units that sold by the weighted average cost per unit.

Companies that use the perpetual system and want to apply the average cost to all units in an inventory account use the moving average method. Every time a purchase occurs under this method, a new weighted average cost per unit is calculated and applied to the items. As the chart below indicates, the moving average cost per unit changes from $14.00 to $15.50 after the purchase on April 10 and becomes $16.70 after the purchase on October 10.

Use the final moving average cost per unit to calculate the ending value of inventory and the cost of goods sold. Cost of Goods Available for Sale $ 7,200 - Ending Inventory (100 $ 16.70) (1,670) = Cost of Goods Sold $ 5,530

First-in, first-out. The first-in, first-out (FIFO) method assumes the first units purchased are the first to be sold. In other words, the last units purchased are always the ones remaining in inventory. Using this method, Zapp Electronics assumes that all 100 units in ending inventory were purchased on October 10. Cost of Goods Available for Sale $ 7,200 - Ending Inventory (100 $ 17) (1,700) = Cost of Goods Sold $ 5,500 Check the value found for cost of goods sold by multiplying the 350 units that sold by their per unit cost. Units Per Unit Cost Total Cost Beginning Inventory 100 $ 14 = $ 1,400 PurchaseApril 10 150 $ 16 = 2,400

PurchaseOctober 10 100 $ 17 = 1,700 Cost of Goods Sold 350 $ 5,500 The first-in, first-out method yields the same result whether the company uses a periodic or perpetual system. Under the perpetual system, the first-in, first-out method is applied at the time of sale. The earliest purchases on hand at the time of sale are assumed to be sold.

Last-in, first-out. The last-in, first-out (LIFO) method assumes the last units purchased are the first to be sold. Therefore, the first units purchased always remain in inventory. This method usually produces different results depending on whether the company uses a periodic or perpetual system. If Zapp Electronics uses the last-in, first-out method with a periodic system, the 100 units remaining at the end of the period are assumed to be the same 100 units in beginning inventory. Cost of Goods Available for Sale $ 7,200 - Ending Inventory (100 $ 14) (1,400) = Cost of Goods Sold $ 5,800 Check the value found for cost of goods sold by multiplying the 350 units that sold by their per unit cost. Units

Per Unit Cost Total Cost + PurchaseApril 10 200 $ 17 = 3,400 Purchased April 10 150 $ 16 = 2,400 Cost of Goods Sold 350 $ 5,800 If Zapp Electronics uses the last-in, first-out method with a perpetual system, the cost of the last units purchased is allocated to cost of goods sold whenever a sale occurs. Therefore, the assumption would be that the 50 units sold on March 20 came from beginning inventory, the units sold on July 15 and September 30 were all purchased on April 10, and the units sold on December 15 were all purchased on October 10. Therefore ending inventory consists of 50 units from beginning inventory and 50 units from the October 10 purchase.

Units Per Unit Cost

Total Cost Beginning Inventory 50 $ 14 = $ 700 PurchaseApril 10 150 $ 16 = 2,400 PurchaseOctober 10 150 $ 17 = 850 Ending Enventory 100 $ 1,500 Cost of Goods Available for Sale $ 7,200 - Ending Inventory

(1,550) = Cost of Goods Sold $ 5,650 Check the value found for cost of goods sold by multiplying the 350 units that sold by their per unit cost. Units Per Unit Cost Total Cost Beginning Inventory 50 $ 14 = $ 700 PurchaseApril 10 150 $ 16 = 2,400 PurchaseOctober 10 150 $ 17 =

2,550 Cost of Goods Available for Sale 350 $5,650 Comparing the assumed cost flow methods. Although the cost of goods available for sale is the same under each cost flow method, each method allocates costs to ending inventory and cost of goods sold differently. Compare the values found for ending inventory and cost of goods sold under the various assumed cost flow methods in the previous examples. Weighted Average (Periodic) Moving Average (Perpetual) FIFO (Periodic or Perpetual) LIFO (Periodic) LIFO (Perpetual) Ending Inventory $ 1,600 $ 1,670 $ 1,700 $ 1,400 $ 1,550 Cost of Goods Sold 5,600 5,530 5,500 5,800 5,650 Cost of Goods Available for Sale

$ 7,200 $ 7,200 $ 7,200 $ 7,200 $ 7,200 If the cost of goods sold varies, net income varies. Less net income means a smaller tax bill. In times of rising prices, LIFO (especially LIFO in a periodic system) produces the lowest ending inventory value, the highest cost of goods sold, and the lowest net income. Therefore, many companies in the United States use LIFO even if the method does not accurately reflect the actual flow of merchandise through the company. The Internal Revenue Service accepts LIFO as long as the same