The Power and Good Sense of Dollar-Cost-Averaging
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What is dollar-cost-averaging? Dollar-cost-averaging is a method of investing over time by investing a fixed dollar amount on a regular basis, regardless of the share price. Put simply, when you have money to invest, rather than investing all at once, you invest it regularly over a period of time. It also develops a disciplined investing habit.
An excellent example of dollar-cost-averaging is your superannuation. You invest frequently over a long period.

Dollar-cost-averaging overcomes one of the most common mistakes made by investors. They try to time the market. In other words, trying to buy when the market is low and sell when the market is high. It sounds simple but has a very low probability of success.
Another common mistake made by investors is to jump into a booming market and therefore pay a high price, FOMO kicks in. Similarly, when the share market falls sharply many investors make the emotional decision to sell and therefore receive a low price resulting in a poor outcome. Potentially crystalising a loss.
The recent market fall in the ASX All Ordinaries Index from 8343 on 1 August 2024 to 7859 on 5 August demonstrates this volatility. However, by 21 August (the date of writing this article) the All Ordinaries Index had recovered to 8181. Also, this is significantly higher than the All Ordinaries Index of 21 August 2023 of 7366. And represents an annual return of 11%.
And so to commence investing, a proven, lower risk, no stress approach, is to use dollar-cost-averaging.
Scenario:
- Imagine you want to invest in a stock.
- The stock price is $100 per share.
- You decide to invest $100 per week.
What happens:
- If the stock price stays at $100, you buy 1 share each week.
- If the stock price drops to $50, you can now buy 2 shares for your $100.
- This means you get more shares at a lower price.
Benefits for you:
- Dollar-cost averaging: You buy more shares when the price is low and fewer shares when the price is high.
- Reduces risk: You don’t have to try to time the market and potentially buy high and sell low.
- Simplicity: You invest a fixed amount regularly, making it easy to stick to your plan.
Dollar-cost averaging is a long-term investment strategy that doesn’t guarantee profits but can help reduce losses by buying more shares when prices are low and fewer shares when prices are high.
It’s your money and your future.
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