Jason-Craig Watson, Contributor 
WATSON
AN EMERGING trend among investors is the inclination to purchase stocks when everything is 'going well' in the stock market. Many are also only interested in making short-term gains that can be achieved by trying to pick stocks to buy and sell as they attempt to "time the market".
This method does not work for the majority of persons simply because they do not have the time to monitor the market on a daily basis. Instead, it is recommended that investors adopt a focused long-term approach to buying stocks. This is known as dollar-cost averaging.
What is dollar-cost averaging? Simply put, it is a method of buying a fixed dollar amount in an investment on a regular basis, whether it is weekly, monthly, quarterly or annually. For example, one can buy stocks through salary deduction regardless of the share price at that particular time.
Essentially, this allows investors to buy more shares when prices are low and purchase fewer shares when prices increase. This means that over time, the average cost per share will be reduced.
REDUCING RISK
Dollar cost averaging can lower your average price and increase the number of units you can purchase. It reduces the risk of investing a large amount of money in a single stock or investment at the wrong time.
An important point to note is that since April 2002, the tax on dividends has been removed. Tax-free income is always an incentive for investors and hence buying stocks that pay good dividends each year will assist in maximising one's returns while minimising their withholding taxes.
Investors are also encouraged to adopt a dividend reinvestment plan whereby the dividends received from investing in stocks are used to purchase additional shares instead of consuming these returns.
Dollar-cost averaging is best achieved by establishing an automatic investment from your bank account or through a monthly salary deduction plan. Talk to your investment adviser about dollar cost averaging. It's a great way to begin a regular investment plan, and it can create wealth in the long run.
No one can predict market behaviour one hundred percent of the time. However, you can be confident that if you use dollar-cost averaging, you are being prudent and the benefits will accrue over time.
