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Dollar-Cost Averaging: The Power of Investing Regularly

The Power of Investing Regularly

To reach most financial goals, you may have to invest diligently for several years, if not decades. Regular investing through a strategy called dollar-cost averaging can help keep you on track. The principle is simple: Invest the same amount of money each month or quarter, no matter what the market is doing.

Through dollar-cost averaging, you'll buy more shares when the market is declining and fewer shares when it's heading up. In other words, your average price per share may be lower than the market average over that period.

Using Dollar-Cost Averaging...

Month Amount Invested Share Price Shares Purchased
Jan $200 $12 16.6 --When prices are high, your investment buys fewer shares.
Feb  200 $10 20.0  
Mar      200 $9 22.2
April      200 $8 25.0 --And when share prices are low, your investment buys more shares.
May  200 $12 16.6  
Total $1,000 $10.20 100.4
Market Value:   $1,204 --The result: Your investment is worth more because your money bought more shares.


...vs. Making a One-Time Investment

Month Amount Invested Share Price Shares Purchased
Jan $1,000 $12 83.4  
Feb 0        $10 0 --You invest the same amount of money but get 100 shares at $10.20 per share vs. only 83 shares at $12 per share.
Mar 0        $9 0  
April 0 $8 0  
May 0        $12 0  
Total $1,000 $12.00 83.4  
Market Value:   $1,000 --The result: Your investment purchased fewer shares and has less value.


Although dollar-cost averaging can be a very effective way to build your portfolio over time, you should be aware that it doesn't ensure a profit nor prevent loss. You should also take a close look at your financial resources and assess whether you'll be able to contribute to your account on a regular basis. If you can manage to apply dollar-cost averaging to even a small amount of money, consider doing so. Even if you invest only a small amount on a regular basis, you still will be working in a very disciplined way toward achieving your goals.

The plan does not assure a profit and does not protect against loss in a declining market, and an investor should consider his or her financial ability to continue.

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