What Is Dollar Cost Averaging (DCA)?
Dollar cost averaging is a strategy to purchase shares over time regardless of the share price, similar to a savings plan.
This investment strategy/technique doesn’t guarantee that an investor won’t lose money.
Share prices will still go up and down depending on different factors such as company news, company financials and performance, industry trends, media on the company – just to name a few, but adopting a DCA strategy means that if you buy a fixed dollar amount of a particular investment on a regular schedule, you will be able to average out the price you paid for the shares.
When the stock price is higher, your regular investment buys a lower number of shares whereas when the stock price is lower, your regular investment buys a higher number of shares.
This strategy is most effective over the long term and when funds are invested across a mixed portfolio. An easy way to gain exposure to a mixed portfolio for lower cost is to invest in an Exchange Traded Fund (ETF). It’s also important to consider investing in stocks that are likely to perform well over the long term, such as companies that become part of our daily lives, an example could be Google or a large well-known bank.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.
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