Dollar cost averaging is an investment purchase method that aims to spread the cost of single or various investment securities over time. Instead of purchasing the target securities at one time, the main purpose of the dollar-cost averaging strategy is to purchase small amounts of financial assets at each interval regardless of the prices at the time of purchase.
For example, if an investor wants to purchase 500 shares of a company that cost $5000 at a price of $10 per share. Instead of doing this, he plans to acquire 100 shares every month as per the following plan.
|
Intervals |
Shares |
Price |
Cost |
|
Month 1 |
100 |
9.8 |
980 |
|
Month 2 |
100 |
11.2 |
1120 |
|
Month 3 |
100 |
9.2 |
920 |
|
Month 4 |
100 |
9.5 |
950 |
|
Month 5 |
100 |
10.6 |
1060 |
|
Total |
500 |
|
5030 |
|
Average cost |
|
10.06 |
