The Secret to Successful Investing

When it comes down to evaluating how well we do with investing, we are a lot more likely to comment about our investing skills the way we do about our driving skills. In other words, we easily find faults with the way other's invest our money (like those mutual fund managers who lost 30% or more of our retirement portfolios) than we can find faults with our own investment skills (we can surely do better in a self-directed plan!).

However, there is one way we can take full credit for our investment prowess. Something that takes the heat off of our hired investment team (those darn fund managers) and still put all of the glory in our own court. Better yet, this technique will effectively eliminate the risks associated with those short-term market fluctuations that get us so worked up (or stressed out) in the first place. That secret?

Dollar cost averaging. That's right, it's as simple as putting a preset amount of money aside with every paycheck. Whether it is $100 every other week or $1,000 every other week, by investing this way we average down from the ultimate highs and average up from those death-defying lows. In the end, we end up "buying in" at an average price... but the kicker is this: With markets trending upward over the long-term, our average cost will always be below the moving average price of that fund.

Of course, if we are buying into individual securities every other week with just $100, then our costs will outweigh the benefits. But for investors who are taking a more long-term approach, mutual funds (where you can buy fractional ownership in the underlying securities) makes the most sense. It gives you the asset class exposure you need, the professional money management that costs next to nothing (if you save $12,000 per year and pay an expense of 1%, where else can you find someone to manage your retirement for $120 per year?) and the long term performance track records that really could put us to shame.

And since you buy more units when markets are low (you want more units, provided the price is up, up, up when you need the money), you never really worry. Your investment technique makes you look good because over those years of buying more units, your costs have remain low. So low that depending on the next market correction, you may only see a mild reduction (if any at all) while your friends and family will see severe reductions in their portfolios.

Remember that term: Dollar cost averaging. While it is the simplest investment technique out there (you will not even "feel" the money you contribute with every paycheck after a few months), it is also the smartest. And when it comes to investing in these trying times, smart investing is something we can all use more of.

--> Learn more about the Top Dividend Fund as chosen by the Mutual Fund Site.org.

Chris has more than 17 years of financial services experience. In addition to writing reviews for the Mutual Fund Site, he also manages a Debt Blog at HowToRepayDebt.com.