By Sabrina Karl

An age-old piece of investment advice is to buy low and sell high. This would be all well and good if any of us had a crystal ball. But since we don’t, the more modern advice to not bother trying to time the market is more useful.

Timing the market refers to carefully deciding when precisely to buy a stock, bond, or mutual fund. The problem is that the markets are wildly unpredictable over short terms, so the timing decision you choose could easily turn out poorly.

Dollar-cost averaging is one solution, as it spreads out the risk of buying high while increasing the odds of buying low. Let’s say you have $5,000 to invest. Instead of investing all at once, which would put all your eggs in one basket based on the price that day, dollar-cost averaging instead has you invest, say, $500 a month until you’ve invested the full $5,000.

What’s advantageous about this is that, because you’re always investing the same amount each month, when the stock or asset you’re buying is expensive, you’ll buy fewer of the expensive shares. In contrast, when the price is lower, your $500 goes further and you acquire more of the bargain shares.

The result is that your average share price is blended to essentially smooth over the major market swings, because you’re buying over time and at different prices.

While it’s true that if you invest all $5,000 at once and prices later move higher, you would earn more by investing all at once. But the odds are just as likely that prices could move lower, in which case all your shares are in the red.

Dollar-cost averaging is an excellent method for many investors to sleep peacefully at night, knowing their strategy minimizes the risks and market bumps.