Dollar-cost averaging means investing the same amount of money at regular intervals, regardless of whether prices rise or fall. Instead of waiting for the perfect time to invest, you follow a consistent schedule.
A simple example
Imagine investing $100 each month in the same investment.
You invested $300 and purchased 35 shares. Your average purchase price was approximately $8.57 per share.
Notice what happened: your $100 automatically purchased more shares when prices were lower and fewer when prices were higher.
Why it matters
Dollar-cost averaging can encourage consistent investing and reduce the temptation to make emotional decisions based on daily market movements.
The important part: it’s not a guarantee
Dollar-cost averaging doesn’t guarantee profits or protect against losses. If you already have a lump sum available, investing it gradually can also mean missing potential gains, because part of your money waits in cash instead of being invested. FINRA
One thing to remember
You don’t have to predict every market movement to follow a consistent investment plan.
Sometimes, building a habit matters more than finding the perfect entry point.
Try it yourself: pick three prices for the same stock, divide $100 by each one to get the shares you’d buy, then divide $300 by your total shares. Compare that average cost with the simple average of the three prices. To see the habit over time, open the Grow Investments calculator and enter a $0 starting investment, a $100 monthly contribution, 10 years and 6% yearly growth.
Stay sharp, stay organized.
Educational content, not personalized investment advice. The share prices and the 6% growth rate are for illustration only; real investment returns vary from year to year and can be negative.
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