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Iowa Insurance Division Iowa State University Extension Investor Protection Trust

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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 get started.

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 individual stocks?

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 shares.

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 started.

Penny: You’re welcome.  And remember, for more information, visit the ISU Extension website at extension.iastate.edu and look for ‘Invest Wisely.’

 
         
         

Updated September 18, 2007