Dollar-Cost Averaging

A strategy to help make market fluctuation work for you

What is dollar-cost averaging?
How could it benefit you?

All investors face the same question: Is this the right time to buy? Do market fluctuations have you standing on the sidelines? Are you having trouble deciding when is the "right" time to invest?

Rather than agonizing over the answer, you may want to consider an investment strategy that eliminates trying to outguess the market and takes advantage of its highs and lows — dollar-cost averaging.

What is dollar-cost averaging?

Simply put, dollar-cost averaging is committing a fixed amount of money at regular intervals to an investment such as a mutual fund. As the market moves, you buy shares at different prices — some high, some low and somewhere in between. You keep investing the same dollar amount every month, or bi-monthly, and you stay with it over time. That's the disciplined strategy.

Take a look at the following example:

Month	Regular Investment	Price Per Share	Shares Purchased
January	$100	$10.00	10.00
February	$100	$7.00	14.29
March	$100	$8.00	12.50
April	$100	$10.00	10.00
May	$100	$12.00	8.33
June	$100	$11.00	9.09
July	$100	$6.00	16.66
August	$100	$5.00	20.00
September	$100	$9.00	11.11
October	$100	$11.00	9.09
November	$100	$10.00	10.00
December	$100	$9.00	11.11
Total	$1,200	Avg price per share $9.00	142.18 Avg cost per share $8.44

Since you invest the same dollar amount each period, you automatically purchase more shares when prices are low and fewer shares when prices are high. This means that over the entire purchase period, your average cost per share may be lower than the investment's average price per share. And you have used market fluctuations to your investment advantage.

Successful dollar-cost averaging requires that you stick to your plan, regardless of what the market does. Make sure you select an amount that is consistent with your financial means so that you can continue to purchase shares even through periods of fluctuating price levels.

How could dollar-cost averaging benefit you?

Look at dollar-cost averaging five hypothetical $1,000 investments:

In a rising market, even with continually rising prices, the average cost per share may be lower than the average price paid:

In a declining market, automatically purchase more shares at attractive, low prices:

Even in a fluctuating market, dollar-cost averaging may result in an average share cost less than the average share price:

The previous three charts are for hypothetical purposes only and do not attempt to predict actual results.

Investing regular amounts steadily over time (dollar-cost averaging) may lower your average per-share cost. Periodic investment programs cannot guarantee a profit or protect against a loss in a declining market. Dollar-cost averaging is a long-term strategy that involves continuous investing, regardless of fluctuating price levels, and, as a result, you should consider your financial ability to continue to invest during periods of fluctuating price levels.

Dearborn & Creggs Can Help

Your 403(b) or IRA payroll deduction is an excellent way of taking advantage of dollar-cost averaging. Because your contributions are deducted automatically from your salary each pay period, you don't even have to think about it. This makes the process of saving fast, easy and convenient. It also allows you to save on a consistent basis, which makes saving part of your monthly budget.

Contact your Dearborn & Creggs financial representative to find out how dollar-cost averaging can help you retire well.

And if you are already using DCA for your 403(b) or IRA, consider increasing your monthly contribution based on new contribution limits.