What is dollar-cost averaging?
Investing a fixed amount at regular intervals is a strategy called dollar cost averaging. Because the amount you invest is constant, you buy more shares when the price is low and fewer when the price is high. This gives you an average cost per share over time and means you don’t have to take a lot of time and effort to monitor market movements and try and time your investments. It does not however guarantee a profit or protect against loss in a declining market. You should also consider your ability to commit to such a strategy.
Dollar-cost averaging involves regularly investing a fixed sum — say, $100, $300 or $500 a month. Your 401k salary deferral contributions automatically transfer into the fund every month. To understand how dollar cost averaging works, consider this example from the Dun & Bradstreet Guide to Your Investments. “You put $100 into a mutual fund every month. The shares fluctuate in price between $5 and $10. The first month you buy 10 shares at $10 each for a total of $100. The second month, because the market dropped, the shares are selling at $5 each, so you buy 20 shares at $5 and so on. At the end of four months you have acquired 60 shares for your $400 at an average cost of $6.67 per share” — even though the average price of a share for the period was $7.50. In short, dollar-cost averaging commits you to a regular investment program (which is good) and guarantees that over the long haul, you’ll buy more shares at lower prices than at higher prices (which is even better). It’s an espec
Dollar-cost averaging involves regularly investing a fixed sum — say, $100, $300 or $500 a month. Your 457 salary deferral contributions automatically transfer into the fund every month. To understand how dollar cost averaging works, consider this example from the Dun & Bradstreet Guide to Your Investments. “You put $100 into a mutual fund every month. The shares fluctuate in price between $5 and $10. The first month you buy 10 shares at $10 each for a total of $100. The second month, because the market dropped, the shares are selling at $5 each, so you buy 20 shares at $5 and so on. At the end of four months you have acquired 60 shares for your $400 at an average cost of $6.67 per share” — even though the average price of a share for the period was $7.50. In short, dollar-cost averaging commits you to a regular investment program (which is good) and guarantees that over the long haul, you’ll buy more shares at lower prices than at higher prices (which is even better). It’s an especi
Dollar cost averaging takes much of the emotion and guesswork out of investing and trying to time the market. It is a technique used to soften market fluctuations on investment purchases. Basically, you invest a set amount of money on a regular basis over a long period of time, regardless of what the price of the investment is. When the value of the investment is up, you buy less shares; when the value of the investment is down, you buy more shares. The result is that you will acquire most of the shares at a below-average cost per share.
Dollar cost averaging is an investing method that takes advantage of changes in market price over long periods of time. Investors do this by investing a set amount of money, rather than purchasing a certain number of shares, ensuring that their investment buys more shares when prices fall. In dollar cost averaging, an investor will invest a certain amount of money in an investment at regular intervals. For example, an investor might choose to purchase $100 of a mutual fund every month. When the mutual fund has a high price, that dollar amount will purchase less. However, when the price falls, the same dollar amount will purchase more. This investing technique protects the investor from the possibility that the share price will drop after making a stock purchase. Dollar cost averaging is usually done over long periods of time time, particularly with long-term investments to which a person plans to contribute regularly. This helps investors ensure that they pay a mix of higher and lower
