Definition

The automatic investment plan is a program of investment that encourages investors to regular contributions to a fund of nominal amounts such as $30 per month at fixed intervals. In a retirement account or mutual fund, the investor automatically invests funds from their paycheck.

For investors with long-term goals, dollar-cost averaging is the best investment plan.

Brief Explanation

As part of an automatic investment plan, the investor invests the same amount at regular intervals regardless of whether stock prices are rising or falling. Through this strategy, more shares can be bought by the investors at lower prices and fewer shares at higher prices.

Regular investing in a program like an automatic investment plan can help reduce the emotion involved with investing particularly when markets turn volatile because you normally do not change your strategy for a long-term period. There is no need to make drastic changes to your plan. As a result, caesura to invest when the market is declining may result in selling at a loss or losing the opportunity to supplement a portfolio.