Dollar cost averaging

Mar 2, 2018 | Investing

Many believe investing is for wealthy, mustachioed men who wear fancy suits and monocles. But you don’t need a seven-digit figure in your account to be an investing wizard. Anyone can try their hand at investing, whether you have twenty dollars or twenty million dollars to invest. An easy way to get started is with a method of investing called dollar cost averaging.

What is dollar cost averaging?

Dollar cost averaging is a popular investing technique and a great way to start if you want to take it slow. Here’s how it works. You invest a little bit of money every month on some shares that you think are worth investing in. The market will naturally fluctuate, so sometimes you’ll get more for your money and sometimes you’ll get less.

Explain

For example, if you’re investing $25 a month in stocks, and when you start off, the price of a share is $25, you’ll get one share the first month. Next month, when the value of a share goes down to $20, you’ll be able to buy 1.25 shares with your $25. Over time, you’ll buy up more and more. With any luck, because you’ve stuck with it, you’ll have paid an average lower cost than what the share is usually worth, which means you made money. Slow and steady wins the race.

Why it might work for you

Dollar cost averaging is a long-haul strategy. It works well for the risk-averse because it takes some of the guesswork out of investing. Instead of pouring over the stocks, trying to figure out where to spend, you’ve already decided what to buy, and you just stick with the plan, regardless of ups and downs in the price.

The pros and cons of dollar cost investing

Investing is a marathon, not a sprint, so the idea is that if fate favors you, you’ll buy up stocks when the prices are down and make more money in the long run. The flip side is that it’s not guaranteed to work. You could end up paying more over time, buying stocks at inflated prices instead of discounted prices, and losing money.

Investing doesn’t have to be for the fabulously rich. Still nervous about getting started or need some more guidance? Feel free to reach out to one of our Wealth Management Representatives. They’re ready to take your investment skills to the next level.

Dollar cost averaging does not assure a profit and does not protect against loss in declining markets. Since dollar-cost averaging involves continued investing regardless of fluctuating securities prices, you should consider the ability to continue purchases over an extended period of time.

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