What is Dollar-Cost Averaging?

What is dollar-cost averaging?

We know our members aren’t average, but have you considered dollar-cost averaging (DCA) as an investment strategy? DCA can reduce your risk by spreading a larger investment amount over a period of time. This helps manage risk in assets that have price fluctuation but generally increase over time.

How Dollar-cost averaging works

A simple example of DCA would be the difference between investing $1,000 in the S&P 500 on only one day, and $100 in the S&P 500 at the beginning of each month for 10 months. DCA works – check out the chart below for reference:

Dollar Cost Averaging Graph

(Source)

Why use dollar-cost averaging?

Dollar-cost averaging removes the emotion from investing when considering a big purchase, helping develop healthy asset management. Over time, those smaller purchases still add up! DCA avoids timing the market, and lowers the risk of overpaying before a market price correction. An important detail of this strategy is the variability of price; by dividing up the purchase into multiple buys, the chance of paying a lower average price (over time) is maximized.

The data reflects this! Regularly investing smaller amounts into an asset or market reaps more benefits than waiting to have a large sum of money to invest. It is often intimidating to maintain investments during market dips. Dollar-cost averaging maintains a regular inflow of investment even during low market periods, protecting against volatility.

Dollar-cost averaging and addy

With a minimum investment of $1, we are committed to making real estate accessible for all. Additionally, with the added benefit of selecting the specific properties you want to invest in, as well as flexible investment amounts and no fees, you can absolutely DCA into Canadian real estate via our platform.

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