Dollar cost averaging


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Dollar cost averaging

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.

Dollar cost averaging means adding a fixed amount of money on a regular schedule to an investment account, such as a mutual fund, retirement account, or a dividend reinvestment plan (DRIP).

Since the share price of the investment fluctuates, you buy fewer shares when the share price is higher and more shares when the price is lower.

The advantage of this type of formula investing, which is also sometimes called a constant dollar plan, is that, over time, the average price you pay per share is lower than the actual average price per share.

But to get the most from this approach, you have to invest regularly, including during prolonged downturns when the prices of the investment drop. Otherwise you are buying only at the higher prices.

Despite its advantages, dollar cost averaging does not guarantee a profit and doesn't protect you from losses in a falling market.

References in periodicals archive ?
You may not realize it, but if you're investing a regular amount in a 401(k) or another employer-sponsored retirement plan via payroll deduction, you're already using dollar cost averaging. In fact, you can use dollar cost averaging to invest for any long-term goal.
To learn more about dollar cost averaging and other financial strategies for new graduates, visit Desjardins Insurance at http://www.desjardinslifeinsurance.com.
With dollar cost averaging, you buy more fund shares or stock shares when prices are down, fewer shares when prices are up.
EoACA[pounds sterling]This is achieved by dollar cost averaging - investing into different asset classes on a monthly basis targeting returns of between 6-10 per cent per annum.
In my view, dollar cost averaging is one of the cardinal principles of "the power." I'd most likely recommend he put half of his investable dollars in the TSP and the other half, up to the $5,000 limit, into a Roth IRA.
But this is a good time to get people to start dollar cost averaging. Use their optimism to reinforce more optimistic investing.
In our April Web Exclusive, author Fred Burkey, CLU, APA, discusses how dollar cost averaging is a tried and true, disciplined approach to investing over the long term and may be a good way to ease your clients back into an investment portfolio.
This table shows how dollar cost averaging can result in a better average share price than trying to time your purchase.
Dollar cost averaging is an investing technique intended to reduce the risk inherent in placing money in the market with a single large purchase.
Dollar cost averaging assures that at least some shares will be purchased when the market hits bottom, Kantrowitz notes.
Dollar cost averaging new money is also an appropriate strategy to use in volatile markets.
Dollar cost averaging is the systematic purchase of investment instruments over time.