What is dollar-cost averaging?

Dollar-cost averaging is when you systematically invest a set amount at equal time intervals instead of a one-time lump-sum investment. This strategy allows us to avoid mistiming the market and reduces the emotional stress that comes from investing a lump sum of money.

Dollar-cost averaging example

Let’s say you have $8,000 to invest. Instead of investing all at once, you invest $1,000 every month for eight months. As you invest each month, the price of the stock fluctuates and the average unit cost is $9.61.

By spreading out your investment you eliminate the risk of buying at the highest price. 

Dollar-cost averaging helps investors:

  • Avoid mistiming the market
  • Reduce the emotional stress of investing
  • Think long term

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