Blog Layout

What are the Pros and Cons of Dollar Cost Averaging?

Dollar cost averaging requires dedication.

Experienced investors don't need to be convinced about the inherent volatility of the stock market. Prices seem to soar and plummet regularly. One possible investment strategy for smoothing out the inevitable ups and downs is called "dollar cost averaging." But this long-standing investment method has as many detractors as proponents.
 
The basic concept is relatively simple. Essentially, you invest a fixed amount of money in shares of the same stock at regular intervals -- usually, on a monthly basis -- regardless of the stock's performance. (The same principle can be applied to investments in mutual funds.) And you continue to invest the same way for an extended period of time.
 
As a result, you may be able to acquire shares of the stock at a lower cost per share than the prevailing price, providing some volatility protection. This strategy removes the guesswork of trying to "time" the market.
 
For example, let's say you decide to invest $100 monthly in Technology Inc. stock. If the stock sells at $20 a share in the first month, you'll receive five shares. Now assume that the price of the stock drops to $10 a share, so you acquire ten shares in the second month. In the third month, the price of the stock rebounds to $25 a share, giving you four shares.
 
After three months, you've acquired 19 shares of Technology Inc. stock for $300. Your "average cost per share" is $15.79 ($300 divided by 19). But the stock's average price per share during the same time was $18.33 ($20 + $10 + $25 divided by 3). This averaging effect makes the per-share cost of your investment lower than the average market price per share for the same time period.
 
On the other hand, there's no guarantee that dollar cost averaging will work. It doesn't eliminate the risk of a loss in a declining market or that the average cost per share will move slowly. In fact, if you choose a stock that continues to slide downward, your paper losses could pile up.
 
Dollar cost averaging requires dedication. Advocates say you must stick with this approach in both good times and bad. That means you can't stop investing if the market goes into a tailspin. Yet there may come a time when you figure you have to cut your losses.
 
Dollar-cost averaging is a disciplined investment strategy, but it doesn't eliminate the need to review your investments periodically to make sure that they still meet your expectations and your risk tolerance.
October 25, 2024
Burzenski & Company once again supported an event at the Children's Center in Hamden. On October 24, three employees volunteered to be onsite for the Children's Center Trunk or Treat Halloween event. Callie Kutys, Shelly Panico and Carmen Rosado donned costumes and handed out candy to about 100 children. Booooooooo!
October 11, 2024
IR-2024-263, Oct. 10, 2024 WASHINGTON —The Internal Revenue Service announced today continued progress on Employee Retention Credit claims, with processing underway on about 400,000 claims, representing about $10 billion of eligible claims.
October 5, 2024
Monica Dixon Perry, CVPM, will speak at Veterinary Management Council of CT meeting
October 5, 2024
IRS Direct File set to expand availability in a dozen new states and cover wider range of tax situations for the 2025 tax filing season
September 5, 2024
On Thursday, August 29th, we held our annual state-of-the-firm and company picnic at Owenego Inn located in Branford, CT. The firm recognized the 40th employee anniversary of Partner Melody Mann Fox, CPA. Managing Partner Bill Kalinowski congratulated Melody on her tenure and accomplishments with the firm. Said Ralph L. Ricciardelli, CPA, Emeritus, a founding partner of Burzenski & Company, PC, “Mel, 40 years where does the time go? It’s not easy to build a firm and you’ve done it with a lot of grit, expertise, and professionalism. You have been integral in building the firm. You’ve been integral in helping with the staff, whether it was the administrative staff or the accounting staff. I don’t know what we would do without you. There aren’t enough words of appreciation that we can give to you.” It was a great day for employeea to play games such as bocce, corn hole, Jenga, and a trivia contest with staff split up into teams.
September 1, 2024
At the firm's annual state-of-the-firm and company picnic on August 29th, we recognized the 40th employee anniversary of Partner Melody Mann Fox, CPA. Managing Partner Bill Kalinowski congratulated Melody on her tenure and accomplishments with the firm. Said Ralph L. Ricciardelli, CPA, Emeritus, a founding partner of Burzenski & Company, PC, “Mel, 40 years where does the time go? It’s not easy to build a firm and you’ve done it with a lot of grit, expertise, and professionalism. You have been integral in building the firm. You’ve been integral in helping with the staff, whether it was the administrative staff or the accounting staff. I don’t know what we would do without you. There aren’t enough words of appreciation that we can give to you.”Mel, 40 years where does the time go? I remember when you first came to us in 1984 as a staff person. Our first tax season together was 1985. There was a lot of fun things that happened during those early years that laid the ground work for the future.
August 18, 2024
2024 Connecticut Sales Tax Free Week Highlights The 2024 Sales Tax Free Week is Sunday, August 18, through Saturday, August 24, 2024. Sales or purchases of certain items of clothing or footwear costing less than $100 per item are exempt from sales tax. This special exemption applies to purchases made from retailers located in Connecticut as well as from on-line retailers. This year will be Connecticut's 25th Sales Tax Free Week.https://portal.ct.gov/drs/sales-tax/sales-tax-free-week
July 22, 2024
Sarah Williams, formerly of Abilene, TX, has joined the staff at Burzenski & Company, as a Staff Accountant. She earned a Bachelor of Business Administration degree as well as a Master of Accountancy degree from Abilene Christian University in Abilene, TX. Prior to joining our firm, she was as a Tax Associate. She has two cats named Fig and Peach.
July 19, 2024
Burzenski & Company, PC will close the office on Fridays at 12:00 (noon) in the months of July and August. Please contact us during our normal business hours of 8:30AM to 5:00PM. 203-468-8133
May 7, 2024
Click here to listen to the podcast: https://www.buzzsprout.com/536560/15017840
More Posts
Share by: