Dollar Cost Averaging (DCA) is an investment strategy that reduces the impact of market volatility on large purchases of financial assets like stocks or mutual funds. It requires investing a fixed dollar amount at regular intervals, regardless of unit price. More units are purchased when prices are low, fewer are bought when prices are high.
For many investors, DCA is a simple way to accumulate assets. Investors often buy at higher prices before a market correction and when the market goes down, they regret that decision and sell at a market low. DCA reduces the exposure to this risk.
This strategy also helps to ensure you aren’t always watching from the sidelines as market prices soar. The more you miss out on, the greater risk you’ll regret your decision and buy at a higher price. Market disruption is not uncommon and it’s important not to panic.
Market volatility may be a bump in the road when you look at the big picture, so review your portfolio with your advisor. Abrupt decisions based on emotions generally end up causing more damage. If your portfolio is well diversified, staying the course may be the best advice.
Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Mutual funds and related financial planning services are offered through Credential Asset Management Inc.
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