Introduction to Dollar-cost Averaging
Dollar-cost averaging is a systematic investing technique used to accumulate shares of stock over many month or years. You invest a specified amount of money to buy shares at a regular interval, say each month, and then you hold them for the long term.
Here is a simple example of dollar-cost averaging. Suppose you invest $100 each month for five months to buy shares of a stock. Assuming that you paid $50, $52, $58, $56 and $61 for month one through month five, you would have bought 2, 1.923, 1.724, 1.786 and 1.639 shares respectively.
After five purchases the total amount invested is $500 and you own 9.072 shares. Therefore, the average cost per share is $55.11 ($500/9.072). As of the last month, the 9.072 shares are worth $553.41.
Use the Dollar-cost Average Calculator to see how dollar-cost averaging performs with any stock.