Spread your risk, lower your entry price – the beauty of dollar cost averaging
Are you weighing up when to enter the market? Are you waiting for just the ‘right time’ to make that investment? Are you a little wary of buying in? Well, perhaps dollar cost averaging (DCA) is your answer.
Sometimes there is that moment of hesitation before making that initial investment. Perhaps by dividing up the amount you intend to invest and buy smaller amounts, at regular intervals, you can not only decrease your risk but perhaps also pay a lower average price over time.
Let’s look at an example: you could either invest $12,000 in one lump sum at $10, resulting in 1,200 shares. Or you could invest with equal amounts of $1,000 each month.
Using DCA, that same $12,000 over the year, resulted in an average price of $9.57, as you take advantage of buying more shares at a lower price!The key with DCA? Sticking to it. If you start this process, the real benefit of investing when prices are indeed cheaper, requires discipline. If you can stick to your guns, DCA may just be for you.
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