For example, if you decide to spend $500 each month on purchasing shares, you will be able to buy only a few shares if the price is $100 per share. However, if the price goes down to $50 the next month the same dollar investment will buy twice as many shares.
"By making regular and consistent purchases over a longer period of time, your cost basis -- the total amount you pay for a security -- is spread out. That provides a cushion against normal market price fluctuations," says Francis.
"Dollar-cost averaging is a time-proven and effective way to minimize the effects of emotion in financial management," says Kimmel.
Mistake No. 4: Trying to time the market
"It's better to invest regularly, without regard for the general condition of the economy or the direction of the stock market," says Darrell J. Canby, CPA/CFP and president of Canby Financial Advisors, in Natick, Mass.
"Timing the market, trying to determine the best time to buy specific stocks, rarely works," he says. "You might get lucky once in a while, but your luck isn't likely to last."
Rick Willeford, M.B.A. and CPA/CFP, in Atlanta, Ga., says simply, "Market timing and day trading are for suckers. The financial press makes money from advertising, and they do that by keeping you breathlessly chasing the latest tip or fad. They make money whether you win or lose."
Waiting for stocks to hit the "bottom" before you buy or hit the "top" before you sell has long since proven to be a loser's game for investors. Select the stocks or mutual funds that you buy only on the basis of sound fundamentals.
Mistake No. 5: Not maintaining an appropriate asset allocation
If there is one point that virtually all financial advisers agree on, it's the critical need for you to maintain an asset allocation suitable to your personal circumstances. Asset allocation refers to the process of dividing your investable assets among stocks, bonds and cash.
The diversification mix that is right for you at a given point in your life will depend on such things as your age and your tolerance for risk.
If your retirement is years away, most experts recommend relatively heavy investments in equities, 60 percent or more of your total portfolio. "However, if your time horizon is less than three years," says Certified Financial Planner Greg Womack from Edmond, Okla., "stay in fixed investments like CDs, short-term bonds and money markets."
Once you allocate your assets in the manner right for your circumstances, it's important to rebalance at least once a year. As the price of equities goes up or down, the ratio that you have established will change. If the value of your equities has risen, you may want to sell off some of them to restore your original ratios. If their value has dropped, moving more cash into equities may be appropriate.