What is Dollar-Cost Averaging?

Dollar cost averaging is the practice of investing a fixed, or stable, dollar amount on a regular basis regardless of the price of an investment.

It is a strategy that can potentially allow you to lower your overall cost, develop an investment discipline and take advantage of fluctuations in the market.

With dollar-cost averaging you would invest a fixed dollar amount (say $50) on a regular basis (every month as an example) over time. In good markets, your $50 investment would buy fewer shares at the higher price. In bad markets, you would be purchasing more shares at a lower overall price. Over time, this strategy should allow you to lower your overall cost per share as well as provide a disciplined approach to investing in the market on a sustained basis.

An example of this would be contributing to a 401(k) plan at work where employees invest a fixed amount of money, each and every pay period, regardless of the level of the market or the price of their investments.

Dollar-cost averaging can be especially attractive to younger investors, building wealth over time, and long-term investors (regardless of age) who are committed to investing on regular basis yet do not have the time, inclination, expertise or desire to follow the market on a regular basis and attempt to “time” their investment decisions.

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Any opinions are those of Christopher Hudson and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels.