CNN
Dollar-cost Averaging Instead of Emotional Investing
By Saghir A. Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live securely with dignity and fulfill their religious and moral obligations towards charitable activities)
Dollar-cost averaging instead of emotional investing. This simple investment strategy can help reduce guesswork — and help reduce the risks of emotional investing .
For most investors, the key to success is simple: Buy low and sell high. But oftentimes, a scenario like the following plays out:
When the market is up, an investor feels good and buys stocks.
When the market is down, that same investor gets scared and sells.
Although reacting like this may feel instinctively right at the time, buying high and selling low is unlikely to result in a profit.
Why do investors do this? The reason may have a lot to do with us making investment choices the same way we make many important decisions: using both our heads and our hearts (in other words, both logic and emotion). When there’s market volatility — including both market highs and market lows — our emotions tend to take over and we may make illogical choices that go against our best interests.
Rather than falling victim to the potential perils of emotional investing, you may want to be completely logical: Get into the market when it’s down and out when it’s up. This is known as market timing. While this approach sounds rational, the problem is that it’s extremely difficult, even for experienced investors, to do consistently. There’s an old saying: No one rings a bell when the market reaches the top of a peak or the bottom of a trough. Translated means anyone attempting to time the market finds it difficult to know exactly when to make a move.
Thanks to Allah SWT blessed me and I started my very first two investments in 1961 invested only 2,000$ and bought the Dreyfuss Leverage fund and at the same time invested buying 2,000$ worth of international business machine (IBM). What we have written at the beginning of the article buy law sells high. I use this philosophy (Dreyfuss Leverage fund) and I switched this investment from one investment to another which I thought was a very good decision many times.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds, or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
