Actually if I were to do it semi automatically, I could do #3
As Frank said, dollar cost averaging has been discussed here several times and it is a powerful tool, however it is one that often works better in text books than in real life. The problem is that when markets fall the feeling of throwing good money after bad is too overwhelming. Plus, if you are going to do it for an individual stock the risk is substantial. What if you had decided to dollar cost average Lucent three years ago (mid 1998). You would have selected a leading company with a bright future in a high growth area, one whose stock had risen from the single digits in 1996 to around $40 by mid 1998. Then you start putting your $100 or $500 per month and boy do you look smart, the stock keeps rising getting close to $80 late in 1999.
Then it starts to fall, but no problem, you have discipline and fortitude and insight. You know that people abandon dollar cost averaging at precisely the wrong time - they suspend making additional investments when the price is week, exactly when they should be scooping up bargains - so you don't do that you plow ahead. But then what? The news gets worse and worse. So when do you give up? When it gets back to $40? When it falls to $20 (with your average in the $50 range or so)? When it hits single digits? When it goes out of business perhaps or when it recovers?
What if you picked a new economy stock, say CMGI? Or a stock with oodles of potential like RMBS? What if the starting point was 1995 and you decided on some international diversification and selected a Japanese index fund figuring the market had been cut in half, but Japan was still a vibrant competitor filled with smart hard working people that surely must rebound eventually. How long could you keep pouring money in? (I know, I know, in hindsight nobody would select any of these investments.)
Actually, I'm not trying to discourage anyone from using dollar cost averaging - it's a great strategy. However, when applied to a single stock it suffers the same types of risks that any non-diversified strategy does, so if you are going to do it either do it with a variety of different stocks or use a index fund, and realize that the bank brochure you read likely selected companies in hindsight that ultimately did well. It's not as easy as it looks.
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