How do the three common investment strategies differ? Which is good if you want to avoid being killed rather than make a killing in the market?
What will be an ideal response?
Answer: Dollar cost averaging occurs when you buy a fixed dollar amount of stock at specified intervals to level out the ups and downs of prices. It is the best strategy for avoiding being killed rather than to make a killing. The buy-and-hold idea aims at avoiding timing the market, minimizes brokerage fees and costs, postpones capital gains taxes, and is simple to carry out.
A dividend reinvestment plan allows you to accumulate wealth by automatically reinvesting dividends (rather than spend them) without any brokerage fees. Without reinvesting the dividends, your wealth will be limited to the stock's capital gains.
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