Trying to predict when and how markets will move can be nearly impossible and completely overwhelming. Whether you are new to investing or a seasoned professional, dollar-cost averaging can help you cope with price fluctuations in a volatile market. Dollar-cost averaging is simply investing equal or fixed amounts of money at regularly scheduled intervals. With this investment strategy, you will buy more shares when the price of your investment has declined, and fewer shares when the price has risen. Over a period of time, you may lower your average cost. By dollar-cost averaging, you may reduce investment risk by not investing substantial amounts at the wrong time. In addition, dollar-cost averaging forces you to invest on a regular basis, such as with retirement accounts or other long-term investments.
By investing on a regular basis, you can avoid making bad decisions based on emotions, such as the natural tendency to stop investing in a weak market. Investors need to consider that dollar-cost averaging does not assure a profit or protect against a loss in declining markets. Before embracing the dollar-cost averaging strategy, investors should consider their ability to continue investing during periods of falling prices. Frank “Buddy” Brand is a Senior Vice President/ Investments with Stifel, Nicolaus & Company, Incorporated, Member SIPC and New York Stock Exchange and can be contacted in the Florence office at 1325 Cherokee Road or by phone at (843) 665-7599 or toll-free at (866) 850-6995.