Dollar Cost Averaging: A Strategy to Consider
August 30, 2022
When is the best time to invest?
The problem is it is impossible to accurately predict how stock prices will fluctuate during the short term.
Dollar cost averaging is a technique where you invest the same amount of money on a regular basis over time. For example, you could invest monthly and the most likely way to do this would be to have your investment firm deduct funds from your bank account.
This type of ongoing investing is popular and easily facilitated when purchasing mutual funds.
At the end of every year your purchase price will be an average of the previous 12 months values. This can provide comfort that if you are concerned there could be a high degree of volatility with stock prices. You can avoid the potential of investing all of your money at the worst possible time.
Dollar cost averaging can be a significant strategy when the amount you are investing is large. The larger the investment the more concerned you might be if the timing of your investment purchase went against you.
You might have a large amount of money to invest as a result of selling your house or secondary property, receiving a large settlement because of employment termination or an inheritance.
Another way of using the dollar cost averaging strategy is when you are saving on a regular basis.
The motivation would likely be to invest as funds accumulate, however, you still are getting the benefits of dollar cost averaging.
Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Only investment-related products and services are offered through Watson Securities of ACPI. Peter Watson provides wealth management services through Watson Investments. He can be reached at www.watsoninvestments.com