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Could you explain why this is? I don't believe in DCA. I invest all my savings whenever I have money. How would I do things differently with DCA?



Dollar cost averaging is a powerful mechanism to invest on a regular basis, as you do with your weekly salary.

It has the neat property that an investment can actually grow even if the stock price at the end is equal to the stock price at the beginning.

Consider this stock price history on a monthly basis:

Jan - 10, Feb - 9, Mar - 8, Apr - 7, May - 8, Jun - 9, Jul - 10

Assume you invest $100 each month so that the number of shares you buy each month is:

Jan - 100/10 = 10; Feb - 100/9 ~ 11; Mar - 100/8 ~ 13; Apr - 100/7 ~ 14

May - 100/8 ~ 13; Jun - 100/9 ~ 11; Jul - 100/10 = 10

Total Invested = 7x100 = $700
Total Number of shares = 10+11+13+14+13+11+10 = 82
Stock price at end = 10
Investment worth at end = 10x82 = $820
Profit = $120

Neat, huh ?


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