What is Dollar Cost Averaging and is it Right for Me?

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You work hard for your money so you want to make sure you invest in a way that makes sense for you. Dollar cost averaging is a popular method to invest over time. It is a method of accumulating assets by purchasing a fixed dollar amount of securities, at regularly scheduled intervals, over a period of time (for example, $100 per month over the next five years). When the price of the securities is high, your fixed dollar amount will buy fewer securities, but when the price of the securities is low, your fixed dollar amount will buy more. For example, when your share price is $25 your $100 will purchase four shares, but if the price drops to $20 it would buy five shares. This allows you to take advantage of fluctuations in the market. As a result, dollar cost averaging with a fixed dollar amount should yield a lower average per share price than if you bought a fixed number of securities for each periodic interval.

Note: 401(k) contributions are a good example of dollar cost averaging, because they are deducted from each of your paychecks and then sent to the investment company.

Dollar cost averaging is often favored by those who wish to make their periodic investment a part of their monthly budget. The amount invested each month is predictable. An automatic investment plan ensures that the predetermined amount is properly invested at appropriate intervals. Among other things, this relieves you of the concern and emotional burden that comes with trying to decide when, and how much, you should be investing when the price of your securities is rising or falling. Experts suggest that this strategy works best with a single investment vehicle that regularly fluctuates in price.

Remember that since dollar cost averaging involves continuous investment in securities regardless of those securities’ fluctuating prices, you should consider your ability to continue purchases through periods of low price levels. Also, all investing involves risk, including the possible loss of principal, and there can be no guarantee that any investing strategy will be successful.

We have CFS* Financial Advisors ready to help you decide if dollar cost averaging is right for you.

Copyright 2006-2019 Broadridge Investor Communication Solutions, Inc. All rights reserved. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

The information contained above is for informational purposes only and is provided as a service to our members, and is not legal or tax advice. Some links included on this page route to sites owned by an independent third party unaffiliated with Allegacy. Such links are provided only as a convenience. Allegacy does not manage the operation or content of third-party websites and is not responsible for the privacy or security policies on third-party sites. Beware of disclosing personal or account information.

Some links included on this page route to sites owned by an independent third party unaffiliated with Allegacy. Such links are provided only as a convenience. Allegacy does not manage the operation or content of third-party websites and is not responsible for the privacy or security policies on third-party sites. Beware of disclosing personal or account information.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Allegacy Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

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