Dollar Cost Averaging

Dollar cost averaging is an investment strategy under which you put the same amount of money into a security at regular intervals over an extended period of time. Instead of trying to time the highs and lows of the stock market, you invest a set dollar amount on a regular schedule and let the principle of dollar-cost averaging work for you.

Here’s a hypothetical example of dollar cost averaging:

Average cost = $4.65 ($500 ÷ 107.5)

This approach can help you avoid some of the risk associated with trying to time the market. By investing the same amount each month, an investor is automatically buying more shares when the price is lower and fewer shares when the price is higher. Over time, this can be an effective way to build up a portfolio.

Dollar cost averaging does not ensure a profit or prevent a loss. This strategy involves continuous investments in securities regardless of fluctuating price levels. You should consider your financial ability to continue making purchases through periods of low price levels.

However, this can be an effective way for investors who can continue investing through changing market conditions to accumulate shares in seeking to meet long-term goals.