Dollar Cost Averaging

Let us imagine that you have a plan to be a wise investor and use your funds to make strategic deposits into your various investment funds. You've heard about the investment strategy of buying any time the market is low with the plan of selling when the market turns upward.

This might seem like it's a simple and straightforward approach for maximizing investment returns—the problem is, no one knows exactly when these downturns and upturns are going to take place until they've already happened. So is there a strategy that an investor can use to personally take advantage of the regular ups and downs in investment prices to improve their overall portfolio returns?

Actually, there is. With the proven power of a unique strategy known as Dollar Cost Averaging, you can avoid the inherent risk of market downturns. Even further, you can actually use these lows that naturally occur within the market to work for you and your overall financial strategy. This might seem far-fetched, but it's a proven technique that's been successful for a wide range of individuals and investors.

Let us take a look at how dollar cost averaging works:

All investment funds are bought and sold in clearly defined units. Over the course of a month, year, or longer, the value of these units will change—they can go up or down depending on the trends in the market. These deviations in the market will determine the return you receive on your investments.

Consider the following: you decide on a defined amount of money that you want to invest each month, which stays the same all year long, not changing as the market fluctuates. What does change is the amount of units you buy—when unit prices are high, your system will automatically buy a fewer number of units. When those prices are low again, you seize the opportunity to buy more units. By buying these units at lower costs, you'll have the opportunity for more dramatic returns once their value goes up again.

As time goes by, your monthly deposits change only to adjust alongside inflation. Otherwise, your investment amount remains the same each month.

What makes this method so powerful is that it keeps you from being beholden to the fluctuations of a difficult-to-predict market, which can often find investors losing out on opportunities that no one could have anticipated ahead of time. With dollar cost averaging, your investment purchase level is constant from month to month, but your opportunities for return can still be enough to have a significant impact.

If you do not want the hassle of your investment portfolio growth being tied too closely to unpredictable market cycles, dollar cost averaging could be the solution. It is a method that exchanges "timing the market" for "time in the market". For anyone with a long term investment horizon, dollar cost averaging is one of the most hassle-free ways to maximize investment returns while also minimizing risks.

Contact our office to learn more about dollar cost averaging and how this strategy can improve your overall portfolio returns.

Copyright © 2022 AdvisorNet Communications Inc. All rights reserved. This article is provided for informational purposes only and is based on the perspectives and opinions of the owners and writers only. The information provided is not intended to provide specific financial advice. It is strongly recommended that the reader seek qualified professional advice before making any financial decisions based on anything discussed in this article. This article is not to be copied or republished in any format for any reason without the written permission of the AdvisorNet Communications. The publisher does not guarantee the accuracy of the information and is not liable in any way for any error or omission.

What our clients are saying...

  • We expect a Financial planner to be thorough, detailed and have a strong understanding of their clients' needs. It was a pleasure working with Anthony and his team. He delivered a tremendous package and reviewed his findings in great detail. Anthony's attention to detail, solutions, recommendations and in-depth reports provides a great deal of confidence in his recommendations. We would absolutely refer our family, friends and associates to Anthony.

  • I expect my financial planner to review and discuss my financial goals along with how my goals can be achieved. I valued Anthony reviewing my investments and the projections of what they will equate to when I reach my eventual retirement. Anthony has certainly met my expectations and I would be happy to refer my family and friends.

  • My expectation was to be provided with the best possible advice specific to my situation (as it evolves) and to be provided with objective, evidence-based solutions which will provide me with the maximum financial benefit (and peace of mind). I valued the very thorough process of gathering all pertinent information regarding my estate, pension, income and expenses in order to produce a very detailed and fulsome projection of my current and future financial situation. I really appreciate the time Anthony has taken to answer all of my questions and provide sound advice based on my goals and concerns. I am really looking forward to continuing my investment and financial planning journey with Anthony. I would certainly recommend Anthony to my family and friends!

  • We valued receiving a detailed report and explanation of our finances. When working with a financial planner, we expect to have our questions answered with adequate detail and to have a plan developed to help grow our money. Our expectations were clearly met and we would be happy to recommend Anthony to anyone looking for a Financial Plan.

  • We valued the fact that you sat down with us, heard what we wanted to say, asked for clarification and offered suggestions, and then came up with a detailed and well-reasoned plan in a short period of time and communicated that back to us so that we knew what we needed to do moving forward. Thanks!

    Our expectations for a financial planner are several fold: (1) Does the planner communicate well, in that they both listen but also offer suggestions and ideas in a clear easy-to-understand way, (2) Are they able to meet their client at the same energy/level and meet their specific needs? In our case we needed a tax minimization strategy within a short turn around time. (3) Did the planner actually do their job, in that were they able to provide ideas and suggestions that helped address the client's asks?

    We came to see you because we realised that we hadn't looked at how to minimize the taxes related to my Father’s estate planning and my mother’s future financial planning, and you were able to tell us things that we didn't know about, and offered us solutions that helped us with our future financial planning.

    You definitely met our expectations! In some ways, you actually exceeded our expectations. We were hoping that you could respond quickly, and you came up with a detailed and well-reasoned plan faster than we expected!

    Our only area of improvement we could think of was, given that the plan was very detailed, if we had an explicitly spelled out action plan with a timeline for completion.

    We are very happy and would definitely recommend you to our family and friends and in fact have already done so!

  • Anthony made the process very clear and explained each step along the way. He was very honest and straight forward. My expectation from a financial planner is that they are honest and transparent. Anthony definitely met my expectations and I would be happy to recommend him to my family and friends.