Dollar cost averaging is an investment strategy of investing the same amount of money at regular intervals. This method gives investors a systematic approach to investing in the markets over time to take advantage of price drops by buying more units of the same investment.
This Dollar Cost Averaging infographic illustrates how dollar cost averaging works and offers an example of how this approach can result in a lower average price per share over time. Because buying more shares when prices are lower and fewer share when prices are higher, the average cost per share should be lower over time.
This investment strategy is just one to consider when building a holistic financial plan. Because the investments are recurring, dollar cost averaging can be built into an investors regular Cash Flow.
“Spreading out intervals of investments also spread out risk.”
Dollar cost averaging does not guarantee an investment will make a profit nor does it offer protection against losses in a falling market. This strategy is most effective when share prices are purchased in both market ups and downs.
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