What Is Dollar Cost Averaging & How Can It Be Used To Take Advantage of Market Volatility?

Dollar-cost averaging is a stock market investing technique where you buy a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low and fewer shares are bought when prices are high. This can help reduce the impact of volatility or price swings on purchases of financial assets. For instance, say you plan to invest $500 over a five month period, so that would be $100 per month. Let’s say your stocks price varies month to month as follows, $5, $8, $5, $3, $5. You would have bought this many shares each month, 20, 12.5, 20, 33.33, 20. Mathematically, the average share price would have been $5.20. With dollar cost averaging, the average per share cost would be $4.72. So you say $0.48 per share just by taking advantage of market variations, this method does not account for the value of time or for long protected trends. 

Always seek a professional to develop an investment plan that fits you and your circumstances. Periodic investment plans such as dollar cost averaging do not assure a profit or protect against a loss in declining markets. This strategy involves continuous investment, so the investor should consider his or her ability to continue purchases through periods of low price levels. We can help, so give us a call today.


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