Dollar cost averaging is an approach to investing where a fixed amount is invested regularly over a period of time, rather than as a single lump-sum. If you plan on regularly investing $100 each week or month, that's an example of a dollar cost averaging strategy. By making investments regardless of market conditions, this strategy overlooks day-to-day market fluctuations and the difficulties of timing the market. The key to this long-term strategy is persistence.

Accumulating shares

When you invest using dollar cost averaging, you:

  • Buy more shares when the price is low
  • Buy fewer shares when the price is high

If you invested, for example, $500 per month and the price was $20 per share, you'd buy 25 shares. If the market price rose to $25, you would buy only 20 shares that month. The premise is to regularly invest the same dollar amount, though the number of shares you buy may change from period to period.

Getting started

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.

To get started with dollar cost averaging, consider how much and how often you would like to invest on a regular basis. It’s important that you’re able to keep the amount steady over a period of time, usually on a monthly or quarterly basis.

You might consider ways to arrange to automate the process by having the invested amount withdrawn from your checking or savings account by preauthorized withdrawals. Automatic investments can help keep you on track with your dollar cost averaging strategy and help build towards your financial goals.

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