Impactful strategies to build wealth over time: Dollar Cost Averaging
By Cole Seabrook
Financial Advisor, O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd.
One solution to help individuals grow their wealth overtime, while maximizing the timing into the market is Dollar Cost Averaging (DCA).
What is dollar cost averaging?
Dollar cost averaging is when you invest a fixed sum of money on a regular basis, regardless of the market conditions. This strategy helps individuals develop a disciplined savings and investing habit over time.
How does dollar cost averaging work?
In most cases when individuals are dollar cost averaging into the market, it is done automatically through a direct deposit from their bank account to their investment account, making the transactions seamless. By dollar cost averaging, you are buying more when prices are lower and less when prices are higher, depending on the market price of the shares/units. Over the course of time this strategy could lower your overall cost per share/unit compared to what it may have been if you purchase the investment in one larger lumpsum.
What are the benefits of dollar cost averaging?
While you may be reducing your cost per share/unit, there are many other benefits to consider when implementing the DCA strategy. One of the major benefits is establishing savings and investing habits. Because in most cases the contributions are set up automatically, over a period of time individuals are accustom to the money being transferred to an investment account on specific days of the month. When implementing the dollar cost averaging strategy, individuals are less likely to miss the money they are investing while establishing discipline to stick to their financial plan. In addition to developing good habits, it keeps individuals open for investment opportunities when in down markets or experiencing high volatility.
In summary, dollar cost averaging is a great low-cost strategy for individuals who do not have excess funds or are looking to compound their savings while keeping a steady cash flow for their day-to-day expenses. It is a great way of saving and investing on a regular basis to help individuals achieve their short & long-term financial goals.
If you are looking to start saving/investing for your future financial goals or, have questions around best strategies for your individual financial situation, the team at O’Farrell Wealth & Estate Planning would be more than happy to sit down and have a conversation to help you stay on track.
Cole Seabrook is a Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact him at 613.258.1997 or visit ofarrellwealth.com to discuss your circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
