Dollar Cost Averaging -- you may
already be doing it
Radio Transcript, 2 minutes 15 seconds, for use during week
of September 17.
Description: Penny, Susan, and Ira discuss how to get started
with dollar cost averaging
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.
Susan: Penny, we’ve talked about dollar cost averaging
and I think it’s a strategy that would help me reach my
investment goals, but I’d like to know more about how to
Penny: First, decide how much you can invest each month or quarter. The
key to dollar cost averaging is consistency. You’ll
want to be sure that you’ll be able to contribute the same
amount each and every month or quarter.
Susan: So first I should look at my financial situation and
decide on the amount I can consistently invest?
Penny: Yes. Next, you’ll want to select an investment
to hold for the long term, say, five to ten years or longer. Once
you’ve done that, you’ll want to consistently purchase
that security each month.
Ira: What if the price goes up and Susan can’t purchase
as many shares, should she continue to invest?
Penny: Yes. The key to dollar cost averaging is to stick
to your schedule regardless of the price of the security. Over
time the average cost per share will become less.
Ira: Should we be concerned about the cost of commissions if
we’re using dollar cost averaging to consistently purchase
Penny: Although dollar cost averaging can be used to purchase
individual stocks, you’re right that the cost of commissions
may not make this feasible for many investors. Instead,
you might want to choose no load mutual funds that charge no
sales fees. Mutual funds also allow you to purchase fractional
Susan: So, choose a consistent amount to invest each month,
select an investment that I want to hold long term, and then
invest consistently each and every month.
Penny: And remember, even with dollar cost averaging, you’ll
still want to monitor your investments. Be sure to regularly
re-examine the company or mutual fund to see if it’s still
a wise investment for you.
Ira: Thanks for the tips, Penny. I know I have a much
better understanding of dollar cost averaging and how to get
Penny: You’re welcome. And remember, for more information,
visit the ISU Extension website at extension.iastate.edu and
look for ‘Invest Wisely.’