Trying to Avoid Losses During Market Swings?

One of the most fundamental truths of investing is that you can't time the market.  Even so, it's natural to wince a little when you buy an investment only to see the price drop, or sell only to see the price rise.  One approach that might help alleviate some of your concern is dollar-cost averaging.

MONTH BY MONTH

If Deborah invested $3,000 in a security with a $30 share price in month 1, she could purchase 100 shares.  If instead she invested $500 each month over a six-month period, she might be able to accumulate more shares for the same dollar investment, which could result in a lower average cost per share.

MONTH AMT INVESTED SHARE $ SHARES ACQ
1 $500 $30 16.67
2 $500 $35 14.29
3 $500 $25 20.00
4 $500 $20 25.00
5 $500 $30 16.67
6 $500 $35 14.29
TOTAL $3,000 6 / $175 106.92

average price per share: $29.17 (6 / $175)

average cost per share:  $28.06 (106.92 / $3,000)

*hypothetical example, actual results will vary

Regular Investments

Dollar-cost averaging involves investing a fixed amount on a regular basis, regardless of share prices and market conditions.  Theoretically, when the share price falls, you would purchase more shares for the same fixed investment.  This may provide a greater opportunity to benefit when the share prices rise and could result in a lower average cost per share over time (see chart).

If you are investing in a workplace retirement plan through regular payroll deductions, you are already practicing dollar-cost averaging.  If you want to follow this strategy outside of the workplace, you may be able to set up automatic contributions to an IRA or another investment account, or you could make manual investments on a regular basis, perhaps choosing a specific day of the month.

Dollar-cost averaging does not ensure a profit or prevent a loss, and it involves continuous investments in securities regardless of fluctuating prices.  You should consider your financial ability to continue making purchases during periods of low and high price levels.  However, this can be an effective way to accumulate shares to help meet long-term goals.

All investments are subject to market fluctuation, risk, and loss of principal.  When sold, they may be worth more or less their financial cost.

This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding and federal tax penalties.  you are encouraged to seek advice from an independent professional advisor.  The content is derived from sources believed to be accurate.  Neither the information presented nor any opinion expressed constitutes solicitation for the purchase or sale of any security.  This material was written and prepared by Broadridge Advisor Solutions.

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