Dollar-cost averaging
This page will provide you with more information about dollar-cost averaging, a method that can help limit the risks of market fluctuations.
If you want to find out more about the right investment options for you, contact DFS Investments.
What is dollar-cost averaging?
A risk of mutual funds is the fluctuating share price. Shares that were purchased on Monday for $9.50 may be selling for $9.35 on Tuesday or $9.58 on Thursday. These fluctuations occur because the prices of the securities in a fund will change based on activities in the markets.
Dollar-cost averaging is one way to help smooth out the effect of market fluctuation. It occurs when investors put the same amount of money into their account on a regular basis. Transferring money from a bank account to purchase mutual fund shares is a convenient way to do this.
The result of dollar-cost averaging is that more shares are purchased when the price is low and fewer shares are purchased when prices are high, which should make the average cost per share lower than the average share price. Using this method, you can decrease the risk of making a lump sum purchase at an inopportune time. Dollar-cost averaging does not, however, ensure a profit or protect against loss.
Hypothetical illustration of dollar-cost averaging
The example below shows that after investing for 12 months, the average cost per share is lower than the price of the current cost per share.
Investment Date
Amount invested ($)
Share price ($)
# of Shares purchased
January
100
10.00
10.000
February
100
9.78
10.225
March
100
10.40
9.615
April
100
9.62
10.395
May
100
10.50
9.524
June
100
10.75
9.302
July
100
9.87
10.132
August
100
10.75
9.302
September
100
11.10
9.009
October
100
11.50
8.696
November
100
11.30
8.849
December
100
11.25
8.888
Investment Date
Amount invested ($)
January
100
February
100
March
100
April
100
May
100
June
100
July
100
August
100
September
100
October
100
November
100
December
100
Investment Date
Share price ($)
January
10.00
February
9.78
March
10.40
April
9,62
May
10.50
June
10.75
July
9.87
August
10.75
September
11.10
October
11.50
November
11.30
December
11.25
Investment Date
# of Shares purchased
January
10.000
February
10.225
March
9.615
April
10.395
May
9.524
June
9.302
July
10.132
August
9.302
September
9.009
October
8.696
November
8.849
December
8.888
The chart above is intended to illustrate the mathematical principle of dollar-cost averaging. This hypothetical example is for illustrative purposes only and doesn't represent any specific type of investment. It doesn't include the impact of expenses or fees, which would have reduced the results of the illustration.
How to take advantage of dollar-cost averaging
There are many ways an investor can take advantage of dollar-cost averaging. A common method is to regularly invest a fixed amount through a pre-authorized chequing account (PAC). A predetermined amount is regularly deducted from the investor’s bank account through electronic funds transfer (EFT). The purchase may be scheduled to occur twice per month, monthly, quarterly or any way that is convenient for the investor.
Mutual Funds are not insurance products and are distributed through representatives of Desjardins Financial Security Investments Inc.
Please read the applicable Fund Facts before investing. Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments.
Mutual Funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer.
Neither Desjardins Insurance nor its agents provide tax or legal advice. Please consult your tax, legal or investment advisor regarding your specific circumstances