McMillion Financial Group
your partner in retirement planning
your partner in retirement planning
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
Dollar Cost Averaging
You may have heard it said that investment success results from time in the market, not timing
the market. While buying low and selling high is ideal, it is nearly impossible to predict exactly
when the market will rise or fall on a consistent basis. That's why many long-term investors
utilize dollar cost averaging, the practice of investing a set amount of money in the same
investment at regular intervals. Dollar cost averaging helps to reduce the effect of market volatility
when building an investment portfolio markets. With dollar cost averaging, you may buy low or
high. When prices are low, your Of course when prices rise, fewer shares will be purchased. But
over time, the average amount paid for each share (average cost per share) may be less than the
average price per share.
Since dollar cost averaging requires identical investments to be made at pre-determined times,
the strategy eliminates the decision of when to invest. Also, by developing a regular schedule for
investment contributions, you are more likely to stick to the discipline for your investment plan.
Dollar cost averaging can enable you to begin a savings program with a series of small
contributions. The strategy is suited to long-term investors with the fortitude to keep investing
when the market falls and to resist selling when the market rises. Dollar cost averaging does not
ensure a profit, nor does it protect from loss during declining markets. Investors should consider
their ability to purchase shares continuously during periods of falling share prices.
How Does Dollar Cost Averaging Work in a Declining Market?*
Let's say you decide to make a monthly investment of $400 for a period of six months. During that
time, share prices are falling: $20, $18, $18, $15, $14, $14. At the end of six months, you have
invested $2400 and you own 148.24 shares. While the average price per share is $16.50, your
average cost per share is only $16.19.
Now that may not seem like such good news considering the current price per share is $14. But
if you had invested the entire $2400 in the first month of your investing program, you would have
fared worse. You would have purchased on 120 shares and the value of your account at the end
of the six month period would be only $1680, $395.36 less than the current value under this
scenario. By dollar cost averaging, you own more shares and the average cost of each share
may be less than the average price per share.
How Does Dollar cost Averaging Work in a Rising Market?*
Once again, we'll assume a monthly investment of $400 for six months. This time, share prices
are rising and you buy shares at: $15, $17, $20, $20, $23 and $25. At the end of the six month
period you own 123.58 shares and your average cost per share is $19.42--58 cents less than the
average price per share ($20).
beginning of the six month period when prices were at the lowest level. But could you have
predicted precisely when to invest? And would you have known with absolute certainty that the
investment would experience a steady rise during the next six months? Probably not. By dollar
cost averaging, you can spread the risk of investing in a volatile market without worrying about the
timing of your purchases.
*These are hypothetical examples only and are not indicative of the performance of any particular investment.
Before investing in a mutual fund, consider its investment objectives, risks, charges and expenses carefully.
You may have heard it said that investment success results from time in the market, not timing
the market. While buying low and selling high is ideal, it is nearly impossible to predict exactly
when the market will rise or fall on a consistent basis. That's why many long-term investors
utilize dollar cost averaging, the practice of investing a set amount of money in the same
investment at regular intervals. Dollar cost averaging helps to reduce the effect of market volatility
when building an investment portfolio markets. With dollar cost averaging, you may buy low or
high. When prices are low, your Of course when prices rise, fewer shares will be purchased. But
over time, the average amount paid for each share (average cost per share) may be less than the
average price per share.
Since dollar cost averaging requires identical investments to be made at pre-determined times,
the strategy eliminates the decision of when to invest. Also, by developing a regular schedule for
investment contributions, you are more likely to stick to the discipline for your investment plan.
Dollar cost averaging can enable you to begin a savings program with a series of small
contributions. The strategy is suited to long-term investors with the fortitude to keep investing
when the market falls and to resist selling when the market rises. Dollar cost averaging does not
ensure a profit, nor does it protect from loss during declining markets. Investors should consider
their ability to purchase shares continuously during periods of falling share prices.
How Does Dollar Cost Averaging Work in a Declining Market?*
Let's say you decide to make a monthly investment of $400 for a period of six months. During that
time, share prices are falling: $20, $18, $18, $15, $14, $14. At the end of six months, you have
invested $2400 and you own 148.24 shares. While the average price per share is $16.50, your
average cost per share is only $16.19.
- Investing $400 Each Month in a Falling Market
Month Price Shares
Bought Investment Per Share Purchased
1 $400 $20 20.00
2 $400 $18 22.22
3 $400 $18 22.22
4 $400 $15 26.66
5 $400 $14 28.57
6 $400 $14 28.57
Totals: $2400 $16.50 (avg) 148.24
Average cost per share: $16.19
(Total investment divided by number of shares bought)
____________________________________________
Average price per share: $16.50
(Sum of share price divided by the number of contributions)
Now that may not seem like such good news considering the current price per share is $14. But
if you had invested the entire $2400 in the first month of your investing program, you would have
fared worse. You would have purchased on 120 shares and the value of your account at the end
of the six month period would be only $1680, $395.36 less than the current value under this
scenario. By dollar cost averaging, you own more shares and the average cost of each share
may be less than the average price per share.
How Does Dollar cost Averaging Work in a Rising Market?*
Once again, we'll assume a monthly investment of $400 for six months. This time, share prices
are rising and you buy shares at: $15, $17, $20, $20, $23 and $25. At the end of the six month
period you own 123.58 shares and your average cost per share is $19.42--58 cents less than the
average price per share ($20).
- Investing $400 Each Month in a Rising Market
Month Price Shares
Bought Investment Per Share Purchased
1 $400 $15 26.66
2 $400 $17 23.53
3 $400 $20 20.00
4 $400 $20 20.00
5 $400 $23 17.39
6 $400 $25 16.00
Totals: $2400 $20 (avg) 23.58
Average cost per share: $19.42
(Total investment divided by number of shares bought)
____________________________________________
Average price per share: $20.00
(Sum of share price divided by the number of contributions)
beginning of the six month period when prices were at the lowest level. But could you have
predicted precisely when to invest? And would you have known with absolute certainty that the
investment would experience a steady rise during the next six months? Probably not. By dollar
cost averaging, you can spread the risk of investing in a volatile market without worrying about the
timing of your purchases.
*These are hypothetical examples only and are not indicative of the performance of any particular investment.
Before investing in a mutual fund, consider its investment objectives, risks, charges and expenses carefully.
_______________________________________________________________________________
Copyright 2006 McMillion Financial Group LLC. All rights reserved. Revised July 12, 2019.
______________________________________________________________________________
Branch Office: 111 2nd Ave NE, Suite 913B, St. Petersburg FL 33701
Phone: (727) 456-1518 E-mail: kmcmillion@mcmillionfinancialgroup.com
McMillion Financial Group LLC is not an affiliate of Fortune Financial Services
Inc.
Phone: (727) 456-1518 E-mail: kmcmillion@mcmillionfinancialgroup.com
McMillion Financial Group LLC is not an affiliate of Fortune Financial Services
Inc.
