Dollar-Cost Averaging

Dollar-Cost Averaging is an investment strategy that involves consistently Investing a fixed amount of Money into a particular Asset or portfolio at regular intervals, regardless of the Asset’s price. This approach helps reduce the impact of volatility on the overall purchase and can lead to a lower average cost per Share over time.

By Investing the same amount regularly, investors buy more Shares when prices are low and fewer Shares when prices are high, potentially mitigating the risk associated with Market Timing.

Examples:

• If an investor decides to invest $100 every month in a Stock, and the Stock prices fluctuate as follows:
  • January: $10/Share → 10 Shares
  • February: $20/Share → 5 Shares
  • March: $15/Share → 6.67 Shares
  • April: $25/Share → 4 Shares

  After four months, the investor would have bought a total of 25.67 Shares at an average cost of $15.59/Share.

Cases:

• In a volatile market, dollar-cost averaging allows investors to avoid the stress of trying to time the market and can lead to more disciplined Investing habits.
• It is particularly useful for long-term investors who are looking to build wealth over time, as it encourages regular investment regardless of market conditions.