What is Dollar-Cost Averaging?
Dollar-cost averaging is an investing strategy used by many investors to help smooth out the peaks and valleys of a volatile market. By reducing the effects of short-term market fluctuations, you can stop worrying about “the right time” to invest.
Dollar-cost averaging is very simple once you follow the rules. To apply the strategy, you simply invest a set dollar amount at regular intervals (typically monthly), regardless of the share price. By doing so, you lower the average cost per share and reduce the risk of buying at the least opportune moment.
Things to Consider
Being consistent is very important when utilising dollar-cost averaging. The strategy will only work if you maintain your set investing amount at your set intervals. Straying from the path will defeat the purpose of using this method and you could find yourself trying to time the market or chase returns. Make it a habit and set yourself an interval reminder ⏰
Make sure to account for your broker's trading fees. If your broker charges a high commission rate per share, it may counteract the effects of dollar-cost averaging. Opening a DriveWealth brokerage account through MyWallSt has some great bonuses, if you are a MyWallSt subscriber and you set up a DriveWealth account through our app you will receive an exclusive commission rate of $0.01 per share 💸
Dollar-cost averaging is not without its difficulties. If faced with a bear market you may be tempted to abandon your dollar-cost averaging strategy. However, if you truly believe in a company, a bear market can be seen as an opportunity to get more bang for your buck. Staying disciplined and maintaining a long-term mentality can help you to beat the bear 🐻