Over time, you buy more shares when the
price is low and less when the price is high.
The
Informed
Investor's Guide
How Dollar Cost Averaging
Works (continued)
Assuming the market rebounds (conveniently, let's say this happens in the
third month) each share is again worth $10. Your third monthly installment
buys another 10 shares, for a total of 32.5 shares.
Now watch how this
strategy plays out. In three months, you've invested $300, which has purchased
32.5 shares. Your average purchase price is lower than if you had put all
your money in the market at once (and purchased all 30 shares at the original
$10 price).
The average price per share over the past three months ($28 divided by
3) has been $9.33, but your average cost per share ($300 divided by 32.5
shares) has only been $9.23.
