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

Investment of a fixed amount of money at regular intervals, usually each month. This process results in the purchase of extra shares during market downturns and fewer shares during market upturns. Dollar-cost averaging is based on the belief that the market or a particular stock will rise in price over the long term and that it is not worthwhile (or even possible) to identify intermediate highs and lows. Also called averaging.
What types of investors should use dollar-cost averaging?

When asked what the market was going to do, J. P. Morgan reportedly said, "It will fluctuate." Morgan was right! This concept refers to putting a fixed amount of money into securities periodically. In so doing, one's average price per share is lower than the mean average price during the holding period. This is basic math: $100 buys 10 shares of a stock at $10, and 5 shares at $20 when the market is higher. The mean average price is $15. But the investor owns 15 shares and paid just $200 for an average price per share of just $13.33. TIP: A good approach for smaller investors just getting started, and also for IRAs. It works particularly well with diversified mutual funds.

Thomas J. McAllister, CFP, McAllister Financial Planning, Carmel, IN
References in periodicals archive ?
Lots of studies have been done on dollar-cost averaging v.
In doing so, CPAs will find the three classic defensive strategies--diversification, dollar-cost averaging and asset allocation--described below to be crucial in helping older clients maximize their gains while limiting their risk.
The product offers dollar-cost averaging with six- and 12-month fixed options, four death-benefit options, spousal continuance of the contract if the owner dies, and an optional 1 % credit option after years three and six.
Also known as "dollar-cost averaging," this strategy ensures you're buying more shares when prices are down and fewer when they are up.
Second, it allows you to take advantage of a strategy called dollar-cost averaging.
Opt for an automatic trading plan, if possible, to benefit from dollar-cost averaging. This is a strategy of spreading out investment purchases over time to ensure you don't invest all your money when prices are high.
Manulife Investments proposes to replace certain operating expenses of its funds (excluding the Manulife Dollar-Cost Averaging Fund) with fixed administration fees.
The answer, in my opinion, is a practice called dollar-cost averaging. With dollar-cost averaging, an investor commits to buying a specific dollar amount of an asset (stocks, bonds, etc.) at regular intervals, usually monthly, whether that asset goes up or down in value.
Consider the concept of dollar-cost averaging, or systematical purchase of assets at lower average cost over the long term.
The product offers 57 investment options, three death-benefit options, dollar-cost averaging and asset-allocation rebalancing, zero net-spread loans, decreasing mortality and expense charges that disappear after year 20 and a rapid-issue program.
Many employees don't understand concepts such as dollar-cost averaging and the power of compounding.
Each series of the Capped Funds will be closed to new and additional purchases, other than contributions made under existing pre-authorized chequing and dollar-cost averaging plans, including those series used in segregated fund contracts (GIF Select InvestmentPlus and GIF Select Original 75 Series).