What is the dollar-cost average strategy?

dollar cost average

One strategy that you can consider or even utilize is that of the dollar-cost average. It is an easy strategy that novices in investing can quickly grasp. This strategy is defintely worth learning about and considering if you are looking to build wealth over the long-term while minimzing risk.

The definition: Dollar-cost averaging (DCA) is the strategy of investing in stocks or funds at regular intervals to spread out purchases. Instead of timing the market, you focus on accumulating assets over time.

It is a safe strategy that you can take if you want to minimize your risk and loss, as we mentioned. There are pros and cons to this approach of course.

A table that shows the pros and cons of going with the dollar-cost average strategy.

If dollar-cost averaging is the strategy that appeals to you and is one you are considering, then you will have to diligently set money aside for investment purposes.

Many stocks and funds pay dividends and so you could have your brokerage reinvest the dividends automatically on your behalf.

Dollar-cost averaging works because it removes some of the emotional stress that comes with investing. By committing to a set schedule, you don’t have to worry about whether a stock is about to move higher or lower.

Remember, while DCA is a sound strategy, it does not guarantee any return or protection from losses. With investing there is always a risk, and you should make sure to check your risk tolerance and overall goals.

Disclaimer: Please note that we do not provide financial advice and suggest that you also conduct your own research. This content is meant for educational purposes only.

Source: Finra

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