The reason this works is that instead of an investor purchasing a large lump sum, he or she would be purchasing slowly and in smaller amounts, though it is over a longer period of time.

With this process, the cost is then spread out more over a period of time. This will help with issues and fluctuation in the market. Dollar cost averaging is not a sure way to invest, there will still be some impact when the market is lower, however with the steady small purchases, when the market is at a good time to buy you will be compensating for the times that it is less favorable.

If you feel that dollar cost averaging is for you, then there are some simple steps that will make it easy to set up your investments.

A. Start with deciding what amount of money you will have to invest over a period of time. The amount that you are planning on investing needs to be the same so, you will need to make sure that the amount you are starting with is the amount you can afford in the long haul.
B. Next deciding on the investment types that you want to work with. This is usually going to be like the index funds. These will be investments that will last for a long period of time, probably five to ten years or longer.
C. Finally you will need to set up when you will be investing that money, weekly, monthly etc. Then make sure to put that money into that security. In the instance that the broker offers it, you can set up an automatic with drawl plan this way the process is automated.

Combining dollar cost averaging with the mutual funds will create a diversified investment portfolio. With the combination of index funds and dollar cost averaging, you end up with lowering the investment risk and the company risk.

Dollar cost averaging does have its down falls, there are times when the process of purchasing these set amounts over a period of time does not work. The biggest thing is to know when to start the investment process and get in when the market is prime for the picking.

In this situation, people will tend to be happier because when the market is bad, they do not invest as much and when the market is good, they will make money. So the overall plan is a good one. Investing in this manner should provide to be beneficial in creating the nest egg for your retirement. However it still takes some work and research.

When you begin your process of purchasing the dollar cost averaging, if you have decided it is for you, make sure to watch the market and make sure that you invest in the right time. Talk to your broker and set up a plan that will pay out well over time.