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The Benefits of Dollar Cost Averaging

Markets can be volatile. When stock prices rise, thrill and excitement can climb as well with the anticipation of accumulating more wealth. During these times, many investors buy more shares, often at higher prices. However, when prices fall, uneasiness may arise. Unfortunately, many investors often sell at lows, rather than riding out a weak period and waiting for the market to recover.

The emotional roller coaster is sometimes difficult to overcome and may lead to poor overall investment results. Knowing when to buy or sell can be challenging. Even the most seasoned investors find it difficult to time the market.

An investing concept that takes the emotion out of investing is dollar cost averaging.

With dollar cost averaging, you create a systematic purchasing plan, setting up automatic, recurring deposits into your investment account. By purchasing shares on a regular basis regardless of the market’s direction, you may remove the chance of making short-term, emotionally fueled decisions.

If you have a 401(k) or 403(b) retirement plan, then you’re already using this strategy. By contributing a set percentage of your paycheck to your retirement account every pay period, you’re already making automatic deposits, regardless of how the market is doing.

Here are the benefits of dollar cost averaging:

    • You eliminate the temptation to time purchases. Instead, investors commit a certain amount of money to be invested automatically at regular intervals.
    • You remove the emotion from investing. Purchases are made regardless of the market’s direction.
    • Systematic saving and investing programs may build wealth over time and benefit from compounding.

Ready to develop your own systematic purchasing plan? Fill out the form below to talk with an experienced Jemma Financial Advisor about setting one up for your investment account.

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