Understanding Dollar Cost Averaging
Dollar Cost Average (DCA) is an approach to purchasing an investment in which the buyer spends out their purchases so that the total price paid is less affected by market timing.1 It is a strategy that can make it easier to deal with uncertain markets by making purchases automatic. It involves “investing the same amount of money in a target security at regular intervals over a certain period of time, regardless of price.”2
Advantages to DCA include potentially lowering the average cost per share and impact of volatility on investment portfolios. An example of Dollar Cost Averaging is your 401(k) plan. You invest regularly regardless of the price of the investment. You can choose the amount you want to contribute from each paycheck and investments are made automatically.
Benefits of Dollar Cost Averaging
- Can lower the average amount you spend on investments.
- Reinforces investing regularly to build your wealth over time.
- Reduces the stress of trying to figure out when to invest – it’s automatic.
- Removes the pitfalls of market timing.
- Takes emotion out of investing.
1/2 https://www.investopedia.com/terms/d/dollarcostaveraging.asp
Illustration: https://www.fool.com/terms/d/dollar-cost-averaging/
Related articles
As the year draws to a close, many individuals and organizations turn their attention to charitable giving. Whether driven by gratitude, tax planning, or a desire to make a difference, giving back is...
Some of us try to walk 10,000 steps a day to stay fit. It seems to be the magic number with most fitness watches and apps. It turns out the 10,000 steps figure isn't based on any kind of science....
Helping your grandkids financially can be extremely gratifying. It's not surprising that most grandparents help out financially when they can. According to a recent survey by Senior List, about 96%...