DEFINITION:
Dollar-cost averaging is an investment strategy where you invest a fixed amount of money at regular intervals, regardless of market conditions, to reduce the impact of volatility.
When & Why It’s Used:
Dollar-cost averaging is used to mitigate the risks associated with market timing. By investing regularly, you purchase more shares when prices are low and fewer when prices are high, potentially lowering the average cost per share over time. This method is particularly effective during periods of market fluctuation, providing a disciplined approach to long-term investing.
IMPORTANCE OF COMMUNICATION:
Discussing dollar-cost averaging with your advisor helps you understand how consistent investing can lead to improved long-term outcomes. It reinforces the benefits of a disciplined approach, reducing the anxiety associated with market timing. Clear communication about this strategy allows you to see the advantages of gradual, regular investments and how they can mitigate risk.
Furthermore, clear dialogue on dollar-cost averaging builds confidence in your long-term plan by emphasizing the value of staying invested. It enables you to ask questions about how this approach fits into your overall strategy, ensuring that your investment plan remains robust even in volatile market conditions.
EXAMPLES IN CONVERSATION:
“How does dollar-cost averaging benefit my portfolio in today’s volatile market?”
“Can we set up an automatic investment plan to implement dollar-cost averaging consistently?”