Why now is a good time for dollar-cost averaging

The stock market's wild gyrations and steep declines have brought new appreciation for an old investing strategy: dollar-cost averaging.

"This is the best time to be doing it," says Vita Nelson, editor and publisher of The MoneyPaper, a Rye, N.Y.-based financial newsletter that has long touted the concept.

In dollar-cost averaging, instead of sinking a lump sum into a stock or fund, an investor eases into a position by buying smaller amounts at regular intervals -- weekly, monthly or quarterly. That's done already by most savers who have 401(k)s, 529s and other plans and have set amounts taken regularly out of their paychecks or bank accounts.

The downside of dollar-cost averaging is it eliminates your chances of buying stocks only at their lowest point. But experts say it still makes good sense.

Here are five points in favor of using dollar-cost averaging:

LESSENS RISK: Putting all of your money to work in the market at one time heightens the impact of volatility on your portfolio.

REDUCES COST: Because more shares are purchased when the stock price declines, the overall cost is lower than it would be if a constant number of shares were bought at set intervals.

HELPS IN DOWNTURNS: The additional shares bought at depressed prices will generate bigger gains when the market comes back.

REMOVES EMOTION: It forces you to keep sinking money into equities at times when shares are tumbling and you might not be inclined to do so.

AVOIDS MARKET TIMING: Adding shares regularly means you are building your position without trying to jump in at exactly the right time, a dicey proposition at best.