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"People who are afraid to invest $100,000 into stocks in a lump sum because the market is sure to drop the day after, can do it at $5,000 each month for 20 months."

This is one version of dollar cost averaging. Another is that you do not have the lump sum of $100,000, but can manage $5,000 at some regular interval.

In any case, dollar cost averaging and time diversification should not be viewed as ways to lower risk. Obviously, if you only have so much money to invest over some time period, you should wait until you have enough money to where the fees you pay are small, and then you should invest wisely. Certainly you should stay in cash so long as the market is declining, buy when it is moving up, and sell when it begins to decline. The fact is that nothing beats market timing.

Every now and then, somebody writes some piece against market timing. They say something like, "Look at all the people who sold when the market began to decline. Now the market has begun to recover and they are still in cash." Why would they assume that? Whenever I have read such an article, I have been fully invested.
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