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Dollar cost averaging is a systematic approach to investing. It is a strategy that overlooks day-to-day market fluctuations and acknowledges the difficulty in pinpointing the best time to invest. Instead, a fixed dollar amount is invested regularly over a period of time. While it does not guarantee a profit or protect from a loss, it simply focuses on asset accumulation and avoids guesswork.
Market fluctuations can make it difficult to determine the best time to invest. Dollar cost averaging can help smooth out market fluctuations. The key to this long-term strategy is persistence. Whether the market rises or falls, dollar cost averaging can work in your favor. That’s because when you dedicate a fixed dollar amount to invest on a regular basis, your average cost per share over time will be lower than your average price per share.
When you invest using dollar cost averaging, you:
Over time, dollar cost averaging may help you increase the numbers of shares you purchase and, at the same time, decrease your average share price. In this way, market volatility actually works for you – the way that investing a lump sum on a single day cannot.
Determining whether dollar cost averaging is an appropriate investment strategy for you requires an evaluation of your individual financial situation, your risk tolerance and the objectives that you want to achieve.
If you choose, you may begin a dollar cost averaging program with a modest periodic investment. You choose exactly how much money and how often to invest. It’s important that you’re able to keep the amount steady over a period of time, usually on a monthly or quarterly basis.
Your Financial Advisor can arrange to automate the process by having the invested amount withdrawn from your checking or savings account by preauthorized withdrawals. The goal is to hold the investment for a longer term (some experts suggest 5 to 10 years), so that accumulating assets over time proves to be easy, convenient and efficient.
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Wells Fargo Wealth Management provides products and services through Wells Fargo Bank, N.A., and its various affiliates and subsidiaries.
Investing involves risk, including the possible loss of principal. Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially of investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original costs upon redemption or maturity.
Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk.
Guarantees are based on the claims-paying ability of the issuing insurance company. Guarantees apply to minimum income from an annuity; they do not guarantee an investment return or the safety of the underlying funds.
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