Home News Dollar Cost Averaging: The Easy, Low Risk Investing Strategy

Dollar Cost Averaging: The Easy, Low Risk Investing Strategy

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Dollar Cost Averaging: The Easy, Low Risk Investing Strategy

Dollar Cost Averaging

Investing in the stock market involves a whole great deal of elements that are unpredictable. Therefore many first-time investors get scared away by not knowing what inventory (s) to purchase at what time. The market is an overwhelming endeavor, but thankfully there are strategies that take time from the equation.

Dollar Cost Averaging is an investment strategy which mitigates the risk by simply dividing up initial investment over time of time the market. The concept is straightforward. Rather the investor picks a dollar amount that is incremental that is predetermined to devote over time.

Dollar Cost Averaging Example

As an example, Investor A would like to invest $5000 in stock XYZ. He makes the decision to purchase 100 shares in the current cost of $50 percent share. His friend, investor B makes the decision to purchase $5,000 of stock in the identical stock, however $1,000 in a time on the very first day of their next five weeks (dollar cost averaging).

Stock XYZ Prices:

Month 1: $50

Month two: $45

Month 3: $40

Month 4: $48

Month 5: $52

Month 6: $60

By month , Investor A has $6000 using a $1000, or 20%. Investor B however, has a whole equity of $6,437 to get a net yield of almost 29 percent. Investor B Use the fluctuations in cost in order to net greater returns by splitting up his investment! By fixing a dollar amount Investor B was able to purchase more shares at higher prices.

Not satisfied? Let’therefore take a peek at a real stock: Tesla.

Dollar Cost Averaging in Real Life
Tesla June 15, 2018 – October 29, 2018

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Investor A makes the decision to invest a lump sum of $50,000 to Tesla on June 15th, 2018 in a cost per share of $354. Investor B also decides to invest $50,000, however in increments of $10,000 on the 15th of each month.

June 15: $354

July 15: $312

August 15: $342

September 15: $289

October 15: $260

Current Price: $333

At the current cost, Investor A has lost money. His initial investment of $50,000 is now worth only $47,034. But, Investor B, who bought $10,000 worth of Tesla stock about the 15th of each month now has $54,146 to get a net positive yield of 8.3%.

Dollar cost averaging lowers risk for investors with long term investment goals while no investment process is foolproof. It’s a wise way to get the most out of fluctuations in stock prices, although it & rsquo; s not likely to get you rich fast. Try dollar cost averaging along with your Wall Street Survivor virtual portfolio!

The post Dollar Cost Averaging: The Easy, Low Risk Investing Strategy appeared on Wall Street Survivor.

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