[VIDEO] How Dollar Cost Averaging Can Help You Make Smart Investments

Dollar cost averaging is a stock market investing technique where you buy a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low and fewer shares are bought when prices are high. This can help reduce the impact of volatility or price swings on purchases of financial assets. For instance, say you plan to invest $500 over a five-month period. So that would be $100 per month.

Let’s say your stock’s price varies month to month as follows: $5, $8, $5, $3, $5. You would have bought this many shares each month: 20, 12.5, 20, 33.33, 20. Mathematically, the average share price would have been $5.20. With dollar cost averaging, the average per share cost would be $4.72. So you save $0.48 per share despite taking advantage of market variations.

This method does not account for the value of time or for long protected trends. Always seek a professional to develop an investment plan that fits you and your circumstances. Periodic investment plans, such as dollar cost averaging, do not assure a profit or protect against a loss in declining markets.

This strategy involves continuous investment so the investors should consider his or her ability to continue purchases through periods of low price levels.

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The views expressed in this commentary are subject to change based on market and other conditions. This video may contain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

Malcolm Ethridge, CFP® is the Managing Partner of Capital Area Planning Group based in Washington, DC. He is also the Managing Partner of Capital Area Tax Consultants. 

Malcolm’s areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits. 

 Disclosures:

The information provided is for educational and informational purposes only, does not constitute investment advice, and should not be relied upon as such. Be sure to consult with your legal advisors before taking any action that could have tax and legal consequences.

Investments in securities and insurance products are:

NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE