What is Dollar Cost Averaging?

Dollar cost averaging is an investment strategy where an investor regularly contributes a fixed dollar amount into their investment accounts, regardless of the price of the assets at the time of the investment. Hypothetically, let’s say you decide to invest $100 per month. When prices are high, your $100 fixed investment buys fewer shares, and when prices are low, your fixed investment buys more shares. By consistently investing over time, you are essentially averaging the cost of your investments.

Over time, this averaging effect can result in a lower average cost per share. Since you’re investing at a regular rate, you don’t have to deal with the guesswork of choosing when to invest. You also don’t have the roller coaster of emotions that comes with watching the market, which is what often leads to bad financial decision-making. This strategy can help smooth out the impact of market fluctuations. Sticking to a consistent investment plan makes you less likely to be swayed by market hype or fear, and helps dissuade you from making impulsive decisions which could detract from your financial goals. 

Dollar cost averaging is a disciplined approach to investing that can be suitable for individuals who want to invest over the long term with a routine investment plan suitable for their needs. The best way to determine the right investment strategy for you is to speak with our team at Middlebrook Wealth. We are here to help you determine the best path forward to continued financial success. 

Any opinions are those of Middlebrook Wealth and not necessarily those of Raymond James. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.