Dollar-Based Investing Primer Wheat Ridge CO

Most stocks cost odd amounts: $3.25, $18.63, or $101.88. Traditionally, you invest by buying a whole number of shares, and the cost is the number you buy multiplied by the price.

"Dollar-based" investing is different: it means buying stocks or other investments in a dollar amount you choose, instead of in multiples of the stock price. Let's say you decide to invest $50 or $200 a month; your investment doesn't normally buy an exact whole number of shares. It's a great idea for the ordinary investor who wants to put away consistent amounts for the long term.

To see how the two systems work, put yourself in the handcrafted shoes of a wealthy imaginary relative, Mr. Buck.

Let's say Mr. Buck is worth $10 million. Perhaps he employs a professional broker, or perhaps he does all his own investing through an online brokerage account. In any case, his typical investing experience might look something like this.

"Say. That bond I'd forgotten all about has just matured. Suddenly I have $10,000 sitting in my checking account, and I really should invest it in something. Hmmm. I notice that shares in Global Widget have declined recently. But I'm confident the price will recover, and then some. Let's see... at today's share price of $126.99, that $10,000 will get me 78 shares."

With a call or a click, it's done. Mr. Buck now owns 78 shares in Global Widget. The transaction even leaves enough loose change for lunch at an expensive restaurant - if we ignore the $200 or so in commission that his personal broker may have just pocketed....