Thomas-Brock-16-What is dollar cost averaging
In this video, Thomas Brock explains that dollar cost averaging is an investment strategy where regular purchases of an asset help lower average costs over time and reduce the impact of market timing.
Video Transcript
Dollar cost averaging is an investment technique where you purchase an asset, typically a stock, at regular intermittent intervals.
This differs from a lump sum approach where you buy all of it at once. Dollar cost averaging enables you to buy in at an average cost that will mathematically be lower than had you done it all at once. So you avoid buying in at extraordinarily high levels, and you buy in at some extraordinarily low levels, averaging out somewhere in the middle. The most common example of dollar cost averaging is what many of us do through a four zero one ks plan or a four zero three b plan, where we are making regular biweekly contributions into that plan. Another great benefit of dollar cost averaging is that it kind of takes the behavioral bias away from the investor. You don't have to worry about whether you're buying in at the right time and trying to time the market, which none of us can do. Dollar cost averaging is automatic, mathematically proven, and it allows you to buy in at a good average cost point.
