Dollar-cost averaging: Make your investing automatic and increase your savings

Looking for some help to invest your money? Dollar-cost averaging can be a good choice, if you take a long-term view of your investments.

What is dollar-cost averaging?

Dollar-cost averaging is the practice of investing a consistent dollar amount into a given investment regularly.

If you invest a set, minimum amount regularly through pre-authorized contributions, you’ll be better able to handle the ups and downs of market values. That’s because,

• When the unit price of a fund is high, your fixed investment will buy fewer units.
• When the unit price of a fund is low, your money will buy more units.

This strategy lowers the average cost of the units you buy. Essentially, you’ll get more for your money.

With any investment strategy, it’s a good idea to consider the potential pros and cons:

What are some of the benefits of dollar-cost averaging?

Disciplined investing could lead to better financial well-being and more savings

Pre-authorized deposits allow you to invest a consistent dollar amount regularly. You may find you don’t need to think about your investment strategy all the time. Or worry that you’ve forgotten to contribute. Dollar-cost averaging thereby becomes a simple, hassle-free way to be a disciplined saver. Furthermore, because you’re consistently investing, this approach may allow you to save more money over time.

Potentially reduces the effects of market ups and down

Periodic purchases can be weekly, monthly or quarterly. All come with the certainty that unit prices each time you buy will differ. This may lower the average cost of investing and allow you to purchase more units. It will also reduce the effects of volatility on your investment portfolio.

What are some potential concerns about dollar-cost averaging?

Possible loss of return

When markets are rising steadily, you may miss out on certain gains. That can happen when you make several smaller purchases at different times. But over the long term, the strategy of dollar-cost averaging can help reduce this risk.

Patience is part of this strategy

Dollar-cost averaging offers the greatest benefit to investors who have a long-term view of their investments. It also helps to be patient and start such a discipline early on in life. If you don’t have a long-term investment horizon, it may not be the best way for you to invest.

Committing to a dollar figure and regular saving can help you get through market volatility.

With a long-term viewpoint, there’s less stress than what can happen when you check your investments every day.  This long-term perspective can also give you confidence about your financial situation. Even when market values go on a rocky ride.