Dollar-Cost Averaging

There is a way to potentially lower your average cost per share when you invest in the market and it’s called “Dollar-Cost Averaging”.

If I were to ask you if you wanted to invest in a rising market or a fluctuating market the vast majority of you would ask for a rising market. But what is the out come of that?

Take two investors, investor A and investor B.

Investor A starts to invest every month a set dollar amount. And every month the investment he buys goes up. So, with every month that goes by investor A gets less and less “shares”.

Investor B however, invest every month as well but his price goes up and down as time goes by. So when the market is down he gets more “shares” and less when the market goes up.

What is the outcome of this? When you divide the total amount invested by the total number of shares you find your average cost per-share is less. 

This is a good video to illustrate the point.

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Comment   |  6 years, 2 months ago from Burbank, CA