If a simple investment strategy interests you, consider dollar-cost averaging. In fact, if you participate in your employer’s retirement savings plan, you may already use the dollar-cost averaging strategy without even realizing it. But you can also use this strategy when investing on your own. Dollar-cost averaging helps take the guesswork out of when to invest.
What is Dollar-Cost Averaging?
Dollar-cost averaging is an investment strategy where the investor buys a fixed dollar amount of an investment on a regular schedule, regardless of the price of the shares. When prices are low, the investor purchases more shares, and fewer shares when share prices are high. The dollar-cost averaging investment strategy lowers the average price of the shares and increases your opportunity to profit over time. Keep in mind, dollar-cost averaging does not guarantee a profit or protect you from loss in declining markets. For dollar-cost averaging to be effective, you must continue buying shares regardless of fluctuating prices.
How Dollar-Cost Averaging Works
With dollar-cost averaging, you invest the same amount of money in the same fund* or same stock on a regular basis. Before investing, consider the fund’s investment objectives, charges, expenses, and risks carefully. When you participate in your employer’s retirement plan, you contribute the same amount to your retirement plan each pay period and the contributed amount buys shares of the funds you select. On your own, you invest the same amount in a fund or stock on the same day each month, regardless of the investment’s current price or market conditions.
To incorporate dollar-cost averaging into your investment strategy, contact a Fifth Third Bank financial advisor.