Dollar Cost Averaging
Radio Transcript, 2 minutes 15 seconds, for use during week
of September 10.
Description: Penny, Susan, and Ira discuss dollar cost averaging
as an investment strategy.
Announcer: Invest Wisely comes to you from Iowa State University
Extension through a grant from the Investor Protection Trust,
providing investor education on the web at: investorprotection.org.
Ira: Penny, we’ve talked about the need to consider asset
allocation and to regularly evaluate and rebalance our portfolios. I’ve
got friends who say I should be sure to ‘buy low and sell
high.’ Is that going to be the best way for me to
adjust and add to my portfolio?
Penny: Ira, as you’ve probably discovered, buying low
and selling high is often easier said than done. Let’s
look at another investment strategy that’s designed to
reduce market risk and eliminate some of the guesswork of deciding
when to invest--that’s dollar cost averaging.
Susan: I’ve heard of that, Penny, but I’ve never
really understood what it means.
Penny: Instead of waiting to invest a single lump sum when you
feel prices are at a low, with dollar cost averaging, you consistently
invest smaller amounts over a longer period of time.
Ira: So, rather than investing, say, 1000 dollars all at once,
I’d invest 100 dollars every month?
Penny: Yes, when prices are low your 100 dollars, or whatever
amount you decide on, would buy more shares and when prices are
higher, you would purchase fewer shares.
Susan: What if the market is dropping, Penny? Should I
continue to purchase shares in that environment?
Penny: While you might hesitate to buy when the market is going
down, dollar cost averaging is actually most advantageous in
that kind of market. Over time, the average cost per share
of the security will become less.
Ira: So rather than trying to time my purchases to the lowest
price for a particular security, I should plan to invest a specific
amount each month.
Penny: Yes. And you can take advantage of your bank’s
automatic deduction to have that amount withdrawn regularly.
Susan: Thanks, Penny, as always your information is very helpful.
Penny: You’re welcome. And remember, for more information,
visit the ISU Extension website at extension.iastate.edu and
look for ‘Invest Wisely.’