Dollar Cost Averaging
How Dollar Cost Averaging Works
The chart below shows an individual who systematically invests $1,500 each month for 3 months.
In this hypothetical example, the average price per share over this period was $20.
However, the average price paid by the investor using the dollar-cost averaging technique was only $16.36.
This represents a hypothetical saving over the 3 months of $1,000.
When asked what the markets were going to do, renowned investment banker J P Morgan reportedly said, “It will fluctuate.”
We agree with Mr Morgan.
Most of the market’s gains occur in just a few strong, but
unpredictable, periods. You have to stick to a clear plan of regular
investing to be sure you are in the market during these times.