Dollar-Cost Averaging: Investing Made Easy
Key Takeaway
Automatic payroll deduction is one of many ways your plan simplifies saving for retirement, but there’s more to it than just convenience. When you invest a set amount of money in the same funds or portfolios on a regular basis through your plan, you are using an investment strategy called dollar-cost averaging.*
Decisions, Decisions
If you had to invest on your own, you might have trouble deciding when to invest, especially during periods when investment prices are volatile. Dollar-cost averaging can take the guesswork out of choosing the “best time” to invest.
A Set Plan
With dollar-cost averaging, your contributions are routinely invested, regardless of current prices or market conditions. When share prices are high, your contribution purchases fewer shares. When prices are low, you purchase more, putting you in a stronger position to benefit if share prices rise.
Simple Is Good
Dollar-cost averaging is a simple investing strategy that can help you build up the savings you’re going to need when you retire.
| Price per Share | Lump Sum Amount Invested | Lump Sum Shares Purchased | Dollar Cost Averaging Amount Invested | Dollar-Cost Averaging Shares Purchased |
|
|---|---|---|---|---|---|
| Month 1 | $21 | $1,500 | 71.4 | $250 | 11.9 |
| Month 2 | $20 | $0 | 0 | $250 | 12.5 |
| Month 3 | $15 | $0 | 0 | $250 | 16.7 |
| Month 4 | $18 | $0 | 0 | $250 | 13.9 |
| Month 5 | $22 | $0 | 0 | $250 | 11.4 |
| Month 6 | $25 | $0 | 0 | $250 | 10 |
| Total Amount Invested | $1,500 | $1,500 | |||
| Total Shares Purchased | 71.4 | 76.4 |
This is a hypothetical example used for illustrative purposes only. It is not representative of any particular investment vehicle. Your investment results will be different. The number of shares purchased is rounded to the nearest one-tenth of a share.
*Investing regular amounts steadily over time (dollar-cost averaging) may lower your average per-share cost, but this investment method will not guarantee a profit or protect you from a loss in declining markets. Effectiveness requires continuous investment, regardless of fluctuating prices. You should consider your ability to continue buying through periods of low prices.