Dollar-Cost Averaging
Investing a fixed amount on a schedule buys more shares when prices drop and fewer when they rise, pulling your average cost below the average price.
Real lesson card · Page 1 of 2
Fixed dollars, variable shares
Setup
You invest $300 every month for three months. The share price is $10, then $6, then $15. What’s your average cost per share?- 1Month 1: 300 ÷ 10 = 30 shares. Month 2: 300 ÷ 6 = 50 shares. Month 3: 300 ÷ 15 = 20 shares.WhyFixed dollars buy more shares when the price drops.
- 2Total: $900 invested, 100 shares owned.WhyAdd the shares and the dollars separately.
- 3Average cost = 900 ÷ 100 = $9.00 per share.WhyThat’s below the simple average price of $10.33, because more shares were bought cheap.
Takeaway
Buying on a fixed schedule automatically weights your purchases toward lower prices, pulling your average cost below the average price.Myth
Dollar-cost averaging always beats investing a lump sum.Reality
It mainly reduces the risk of buying everything at a peak and smooths the emotions. Historically, a lump sum invested sooner often ends up ahead, because markets tend to rise over time.Recall check from the same lesson
Dollar-cost averaging means you automatically buy more shares when prices are low and fewer when prices are high.
Review the explanation
Answer: True. A fixed dollar amount buys more shares at low prices and fewer at high prices, which pulls your average cost below the average price.
One sitting · 20–30 minutes
A focused session on Dollar-cost averaging
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