Dollar Cost Averaging
A Winning Investment Strategy
low and sell high. That’s the aim of every investor. Yet no
one has ever been able to predict exactly when to act—not
even the experts.
and mid-term markets are impossible to predict, so don’t try
to “time the market”, hoping to hit the upswings and avoid
the drops. It’s a gamble, and as such could be very costly.
Remember it is about time in the market and not timing the
savy investors often use a strategy called dollar cost averaging.
This is a simple, convenient, and disciplined way to buy shares
over the long term.
Here’s How It Works
month or quarter, you invest a fixed dollar amount in an investment
product regardless of the price at the time. Naturally, you’ll
be paying a lower price for some units than others, since
also means that there will be some months when your fixed
amount buys more units than in other months. Over the course
of time, your average cost per unit will most likely be lower
than if you had bought all your units at once, with a single
lump sum investment.
advantage of dollar cost averaging is that you can invest
small amounts each month. Taken together, these easy-to-manage
amounts can add up to more than you could have invested with
a single lump sum. Better yet, investors who take advantage
of this disciplined approach tend to sleep better at night,
never having to worry if they made their investment at “the
Investors, Mr. Smith and Ms. Jones
January, Mr. Smith invested $4,800 in a mutual fund. He buys
192 units at $25.00 each.
Jones invests $4,800 too. But she instead invests $200 a month for
the Chart shows,
over 24 months, the unit price of the fund fluctuates. As
a result, Ms. Jones is able to buy 203 units. At the end of
the 24 months, Ms. Jones has paid an average of $23.65 per
unit. Mr. Smith paid $25.00 per unit.
the end of the period, Mr. Smith owns 192 units and has an
investment worth $5,568.00. Ms. Jones, who owns 203 units,
has an investment that’s worth $5,887.00. Ms. Jones’ total
investment is worth $319.00 more than Mr. Smith’s investment.
hypothetical example helps illustrate the power of dollar
This hypothetical situation
does not represent the results or future returns of any particular
investment, and is meant for illustrative purposes only.
contained in this commentary is designed to provide you with
general information only, and is not intended to be comprehensive
advice applicable to the circumstances of any individual. We
strongly urge you to seek professional assistance before acting
upon information included herein.