When you are just starting out, make a goal of saving and investing a fixed dollar amount every month. The amount you save is not as important as getting in the habit of putting money aside consistently. Automatic savings plans, which you can use to build an emergency reserve or save for a down payment, graduate school, or retirement, are a relatively painless way to save. You can set up an automatic transfer from your bank on the day you get paid, a practice known as “paying yourself first.”
Investing a fixed-dollar amount at set intervals is called dollar-cost averaging. An advantage of these automatic plans is that you invest the same dollar amount every time. When markets are weak, or asset values have fallen, the same dollar amount will allow you to buy more shares of a mutual fund or a stock than when markets are strong and investable assets have appreciated. In this example, the average cost of your investment will be lower than if you decide to buy a set number of shares periodically.
