Example Of Dollar-Cost Averaging
The following is an example of dollar-cost-averaging.
Dollar-cost averaging is a common term you will hear as you start investing. To put it in simple terms, it basically means you put in a fixed dollar amount into your investment every month regardless of the current price of the investment.
The result of doing this is you will buy more shares when the price of the investment is low than when the price is high.
As an example:
If you regularly invest $100.00 a month, and an investment cost $10.00 a share then you could buy 10 shares.
However, if the next month the stock price drops down to $8.00 a share, then you would be able to purchase 12.5 shares for the same $100.00 dollars.
Now if you had just invested all of your $200.00 at once you would have lost more money, because you would have bought on the high end of the market.
This does not guarantee you will always come out ahead. It simply guarantees that you will not always be being buying at either the top or the bottom of the market.