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Setting Up an Ongoing Investing Program
Step 4: Can My Plan Be Carried Out Automatically?
Dollar cost averaging has been made even easier by mutual funds that offer an automatic exchange plan. Under these plans, money can be moved periodically and automatically from a money market fund to any other fund in the family, or between any two funds in the family.
Check the prospectus to determine whether the fund allows for an automatic exchange between funds in the family; whether the fund allows for automatic investments through an investor's checking account; and whether the fund allows the automatic and systematic withdrawal of money from the fund.
Someone with a lump sum to invest might put the money in a money market fund and set up an automatic exchange program with an equity fund, for example. Check with the fund; these services are being initiated continuously. (However, keep in mind that automatic exchange plans will not be useful for value averaging, since the amounts vary each investment period. To use a value averaging approach, look for a fund that allows telephone exchanges.)
Dollar cost averaging and value averaging provide a clear path for investors to follow. With the pathway marked, taking the first few steps of an investment plan should be that much easier.
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