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| How Dollar Cost Averaging Can Work for You |
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Ideally, everyone would like to buy securities when the market's low and sell when it's high. The trouble is, no one can accurately predict when the markets will peak or plunge, therefore, timing the market is usually an unsuccessful endeavor, not to mention stressful!
Dollar cost averaging (DCA) is an investment strategy that can help lessen the anxiety and effort of investing, even during the most volatile market conditions. DCA means automatically investing the same amount of money at specific intervals to take advantage of market highs and lows. Over the long term with DCA, you'll buy fewer shares when the price is high and more shares when the price is low. In other words, your average cost per share will be lower than the average price per share and lower than if you made occasional lump sum investments.
Additionally, many people are more comfortable with a slower investment pace, as opposed to investing a large sum in one shot. The DCA approach helps promote long-term investment practices that, in turn, can help you better ride out market volatility and increase your chances of achieving goals.
The best way to understand the concept of DCA is to see the numbers. Below is an example of monthly investments made throughout a year's time. This is a hypothetical illustration, which does not represent any particular investment. It shows each share price upon investing $100 on each of the dates given. Compare the average price per share to the average cost per share. As the example shows, the average cost you paid for shares is lower than the average price. That's because you bought more shares when prices were low and fewer shares when prices were high.
| Dollar Cost Averaging Over One Year |
| Date |
Investment |
Share Price |
Shares Purchased |
| January 31 |
$100 |
$11 |
9.09 |
| February 28 |
$100 |
$10 |
10 |
| March 31 |
$100 |
$12 |
8.33 |
| April 30 |
$100 |
$13 |
7.69 |
| May 31 |
$100 |
$18 |
5.56 |
| June 30 |
$100 |
$12 |
8.33 |
| July 31 |
$100 |
$9 |
11.11 |
| August 31 |
$100 |
$5 |
20 |
| September 30 |
$100 |
$10 |
10 |
| October 31 |
$100 |
$15 |
6.67 |
| November 30 |
$100 |
$13 |
7.69 |
| December 31 |
$100 |
$20 |
5 |
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| Total Shares Purchased: |
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109.47 |
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| Average Price Per Share: |
$12.33 |
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| Average Cost Per Share: |
$10.96 |
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Dollar cost averaging is not for everyone—the strategy does not assure a profit and cannot guarantee against a loss in a declining market. In addition, DCA involves continuous investments, and you should consider your financial ability to continue purchasing during low price levels.
Your investment professional can provide you with more information about DCA. If you decide to make systematic investments into your MainStay Funds account, you can download the Automatic Investment Form from our Literature Center to help you arrange for automatic transfers.
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