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Dollar-Cost Averaging |
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Dollar-Cost Averaging An investment strategy in which one makes investments in the same dollar amount at regular times. For example, one may buy $1,000 in Stock A every month, regardless of Stock A's current price. Because this means one buys fewer shares when the price is high and more when the price is low, dollar-cost averaging aims to reduce the average cost of the shares one buys. This increases the profit per share when one sells the stock. Dollar cost averaging is most common with shares of a mutual fund or a retirement plan. It is also called a constant dollar plan. Dollar-Cost Averaging (DCA) What Does Dollar-Cost Averaging (DCA) Mean? The technique of buying a fixed dollar amount of a particular investment on a regular schedule regardless of the share price. By using DCA, an investor is continually buying shares, some when the stock price is down and some when the stock price is up, with the goal of averaging out the price of all shares purchased. Also referred to as a constant dollar plan. Investopedia explains Dollar-Cost Averaging (DCA) Eventually, the average cost per share of the security will become smaller and smaller. Dollar-cost averaging lessens the risk of investing a large amount in a single investment at the wrong time. For example, consider a $100 purchase of XYZ each month for three months. In January, XYZ is worth $33, and so the investor buys three shares. In February, XYZ is worth $25, and so the investor buys four additional shares. Finally, in March, XYZ is worth $20, and so the investor buys five shares. In total, the investor winds up purchasing 12 shares for an average price of approximately $25 each. In the United Kingdom, this is called pound-cost averaging. Related Terms: How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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Strategies such as dollar-cost averaging, real estate investing, business ownership, and professional development are all in the magazine in black and white. It features a rider that returns the cost of insurance, a death-benefit guarantee to ages 100, 85 or 65, three ways to structure withdrawals, enhanced dollar-cost averaging for the first six or 12 months, and automatic asset-mix allocation based on the policyholder's retirement date. I'm surprised that the article "Investing After 50" included dollar-cost averaging ( |
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