Dollar cost averaging

We work with individual investors just like you every day. And over the years, experience has taught us that time in the market — not timing the market — is a solid strategy for success. Dollar cost averaging can help you build your portfolio over time and potentially smooth out the bumps along the way.

What is dollar cost averaging?

Dollar cost averaging is a strategy in which you make regular, fixed investments regardless of the cost of the asset. By investing on a set schedule, you develop discipline that can help you be a better long-term investor. Plus, investing systematically lets you buy more shares when the price is low and fewer when the price is high. Think of it this way: It helps "average out" your share price over time.

Benefits of dollar cost averaging

Some potential benefits of dollar cost averaging can include:

• Reduced timing risk as investments are made regularly
• Lower volatility risk with short-term price changes
• Easy accessibility to new or inexperienced investors

Drawbacks of dollar cost averaging

Potential drawbacks of dollar cost averaging can include:

• Missing out on growth investments that aren't part of your strategy
• Short-term underperformance, though long-term investing can help negate this
• Potential to perform worse than the broader markets

If you have concerns about your investment strategy, consider contacting a financial advisor to start developing an investment strategy that works for you.

The four C's of dollar cost averaging

To decide if this style of investing is right for you, consider the four Cs:

• Convenience – Once you've decided on a fixed dollar amount to invest systemically, you take procrastination out of the situation. It's built-in discipline to help you cross several savings goals off your to-do list each month.
• Consistency – Every month, regardless of market movements, you accumulate shares consistently.
• Choice – You can systematically invest in mutual funds, exchange-traded funds (ETFs), annuities and even individual stocks.
• Control – Dollar cost averaging lets you focus on what you can control — investing a set amount on a regular basis — rather than what you can't: the ups and downs of the market.

Dollar cost averaging in action

Imagine you have $6,000 to invest in a specific stock that is currently trading at $10 per share. You could purchase 600 shares upfront. Or, you could purchase thousands of dollars' worth of shares once a month for the next six months. Now, imagine the following price action over a six-month period with $1,000 invested each month:

In this scenario, you would own 609.44 shares of the stock after six months, compared to 600 shares if you had invested all $6,000 upfront.

How to get started with dollar cost averaging

Call your local Edward Jones financial advisor to learn more about how the program works. When you're ready, just give written authorization to enroll.

You can change or stop the program at any time with just a phone call. We'll handle all the record-keeping for you. You can also take advantage of our convenient, complimentary automatic money transfer from a checking, savings, or money market account. That's one less thing to worry about. Find an advisor today.