process
Dollar-cost averaging
The rule
Put in the same money every month, like a SIP. When prices fall, that money buys more units. When prices rise, it buys fewer.
Where it flips
But buying the same way into a broken, always-falling thing just pours money into a hole. The fix is to do this into a wide, sturdy basket like an index fund, not into one weak stock.
Pick one amount and invest it every month, come rain or shine. Do not try to guess the best day to buy. When the market is scary and cheap, your same rupees buy more units. When it is high, they buy fewer. Over time this pulls your average cost down. This simple habit is the engine behind a plain SIP.
A worked example
Haridya puts in ₹10,000 every month. In a low month at ₹100 she gets 100 units. In a high month at ₹200 she gets 50 units. Her average cost ends up below the average price, and she never had to guess the bottom. [illustrative]
How to spot it
- ·same amount, fixed date every time
- ·buying keeps going even in scary months
- ·no trying to time the market
Benjamin Graham · The Intelligent Investor