What is Dollar-Cost Averaging?

dollar-cost-averaging

Market moves can be choppy at times and downright terrifying. This is one reason many would-be investors never take the leap into investing their savings. We know that in order to make your dollars last, we must take on some risk in order to grow them. Then our rational minds try to determine that perfect moment to begin, which in itself is an impossible task - as we all know that trying to time the market is a fool’s errand. You can avoid the stress of getting together a lump-sum to invest and make saving possible without having to overthink it by utilizing the principle of dollar-cost averaging.

So what is dollar-cost averaging and how can we benefit from it? Quite simply it is investing a small amount every month rather than investing a lump sum at a given point in time.  Many of us do this unknowingly when we defer our pay to make contributions to employer retirement accounts.  If somebody invests according to the principles of dollar-cost averaging not only will they have a better overall experience with investing, over time that investor will have been able to acquire more shares, for less per share on average than had they invested a lump sum. 

Although this isn’t fool-proof because markets do experience times of negative returns and steady contributions can result in losses – they are temporary. Over the long-term investors who follow this strategy of saving and investing experience a higher average return.  Obviously, there are no guarantees this strategy will beat a lump-sum buy and hold strategy or any other strategy however, this is a terrific way to navigate volatile markets and take advantage of market downturns. 

If you have questions about Dollar-Cost Averaging, we are here to help. Contact us today to discuss your options.

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Tuesday, 22 October 2019