You may want to seek the input of a financial professional if you are looking to achieve specific investment goals, for example saving enough to retire comfortably. The next step in dollar cost averaging is determining how much you want to invest and how often you are going to make that contribution. For instance, you could put $100 toward this strategy every month like the example used earlier in this article. One quick way to obtain broad market exposure is to invest in an ETF that purchases the benchmark S&P 500, a very well-known stock market index.

1. Yes, you can lose money with dollar-cost averaging if the asset you invest in suffers large enough declines in value.
2. The amount you invest, as well as how often you do so, can vary depending on the investor.
3. Dollar-cost averaging is a strategy in which you invest your money in equal amounts, at regular intervals—say $250 a month—regardless of which direction the market or a particular investment is going.
4. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances.
5. Now that you’ve got a broker who can execute your automatic trading plan, it’s time to figure out how much you can regularly invest.

Buying the dips is tremendously important to securing stronger long-term returns. With dollar-cost averaging, you actually have an overall gain at $40 per share of ABCD stock, below where you first started buying the stock. Because you own more shares than in a lump-sum purchase, your investment grows more quickly as the stock’s price goes up, with your total profit at an $80 sale price more than doubled. First, let’s see what happens with a $10,000 lump-sum purchase of ABCD stock at $50, netting 200 shares. Let’s assume the stock reaches the following prices when you want to sell. The column on the right shows the gross profit or loss on each trade.

A Long-Term Strategy

From a practical standpoint, dollar cost averaging helps you begin investing with small amounts of money. Regardless of what amount and frequency you select, the important part is to stick with it. That way, you can benefit from the strategy of dollar-cost averaging by buying your underlying asset when it rises in value and also when it declines. Alternatively, you could use a higher monthly amount if you want to build wealth more aggressively.

Alternatively, you could opt for a lump-sum investing strategy and choose to invest the whole $300 in that first month at $20 per share, giving you 15 shares. That’s two fewer shares you’d have compared to consistently putting money into the market. You can set up the automatic trading plan at your broker using the ticker symbol for the stock or fund, how much you want to purchase on a regular basis and how often you want the trade to execute. The exact process for setting this up varies by broker, but these are the basics that you’ll need in any case. Dollar-cost averaging is the practice of putting a fixed amount of money into an investment on a regular basis, typically monthly or even bi-weekly. If you have a 401(k) retirement account, you’re already practicing dollar-cost averaging, by adding to your investments with each paycheck.

Scenario 3: In a flattish market

According to research by Charles Schwab, investors who tried to time the market saw drastically less gains than those who regularly invested with dollar cost averaging. Dollar-cost averaging is a strategy in which you invest your money in equal amounts, at regular intervals—say $250 a month—regardless of which direction the market or a particular investment is going. Over time, this can help you buy more shares when the price is relatively lower and buy fewer shares when the price is relatively higher. Dollar-cost averaging is a simple strategy that can help investors stay on track with their investing goals over the long run.

“It’s probably the most effective strategy for all investors at all levels. It’s one of the best ways to set it and forget it but you do want to pay attention to what you’re investing in,” says LaFleur. And if your stock or fund pays dividends, it can be a good time to set up automatic dividend reinvestment with your broker. So even as soon as the next dividend, your configuration change control csf tools dividend will be earning dividends. However, if you’re dollar-cost averaging, you’ll also be buying when people are selling fearfully, scoring a nice price and potentially setting yourself up for long-term gains.

Determine how much you can invest

Dollar-cost averaging only makes sense if it aligns with your investing objectives. If you are investing in a stock or other asset because you like its long-term prospects, and have decided on an amount to invest, then making a lump-sum investment when you make that decision may be the right tactic. It’s worth noting that you may already be utilizing a dollar-cost averaging strategy. If you have a 401(k) or another type of defined contribution investment plan, your contributions are allocated to one or more investment options on a regular, fixed schedule, regardless of what the market is doing. By using dollar-cost averaging, though, he was able to take advantage of several price drops despite the fact that the share price increased to over $11. He ended up with more xtb experience and user review in « brokercheck shares (47.71) at a lower average price ($10.48).

And this week’s high might look like a fairly low run python script with parameters on button click price a month from now. Now that you’ve got a broker who can execute your automatic trading plan, it’s time to figure out how much you can regularly invest. With any kind of stock or fund, you want to be able to leave your money in the investment for at least three to five years.

In addition, you could choose a different interval, putting away money once a week, or one a quarter, for example. Alternatively, an investor could put their money into the shares of a blue-chip company like Apple. As noted above, dollar-cost averaging may offer lower returns than lump-sum investing.

The Bankrate promise

NerdWallet, Inc. is an independent publisher and comparison service, not an investment advisor. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance.

If you were to sell in month 4 at a $40 share price, you’d sell your 15 shares for $600, making a profit of $300. If you were to sell in month four at a $20 share price (the same price as month 1), you’d sell your 17 shares for $340, with a profit of $40. If you were to sell in month 4 at a $40 share price, you’d sell your 17 shares for $680, making a profit of $380.

Let’s assume that you have $250 a month to invest and have identified a mutual fund you’d like to invest in. Using dollar-cost averaging, you invest that amount each month for a year. In a bull market, the fund’s share price might be gradually increasing over the year—meaning your $250 investment buys fewer shares each month as the year goes on. In a bear market, by contrast, your monthly investment goes further—letting you buy more shares with the same amount of money. Dollar-cost averaging works because it’s about consistently funding your investments and putting money into the market, rather than holding back and attempting to time the market.