Dollar Cost Averaging (DCA) is a structured approach to buying investments. DCA is intended to temper the volatility of your investment portfolio by breaking large holding purchases into smaller buys done over time.

Instead of buying a large holding of a single investment vehicle all at once, the entire purchase is divided into smaller transactions and spread over a period of time. Let’s review what that entails.

What you need to know

Some investors are concerned that immediately after making a large investment, the price of that security or stock will fall, and they will incur a loss that must then be overcome.

Consequently, they fail to invest, keeping a portion of their holdings in cash or an underperforming investment that is not aligned with their investment strategy.

An example demonstrating how DCA works:

  • An investor wants to make a $60,000 investment in a single stock
  • The share price is hovering around $20, and will allow about 3,000 shares to be bought
  • The rationale behind this purchase is a buy-and-hold strategy to collect dividends to reinvest, and produce a long-term capital gain
  • Over the next 3 months, 3 equal purchases of the stock will be made:
  1. On August 1st, 1,000 shares are purchased at $20/share = $20,000
  2. On September 1st, 1,110 shares were bought at $18 = $19,980
  3. On October 1st, 950 shares were bought at $21= $19,950

A total of 3,060 shares bought for $59,930 at an average price of $19.58

Dollar Cost Averaging allows investors to mitigate some of the short-term risk associated with price drop immediately after purchasing. Without DCA, if an investor fully buys-in and the price immediately falls, they ‘should have’ waited.

With DCA, an immediate price drop as outlined in the example above allows more shares to be purchased for the same lump-sum amount. This can be especially helpful with a buy-and-hold strategy with a dividend bearing stock.

The Bottom Line

Another benefit of DCA is the structured discipline required to plan and execute the purchases. Investment decisions are typically made with a longer time horizon, and the adherence to the plan is higher, allowing the original purchase rationale to survive market volatility. DCA may be right for you – let’s talk about why or why not.

For more information, and to see if this is the correct approach for you now, don’t hesitate to call.

Having worked with Peacock Sheridan Group in both personal and professional capacities, I am confident in referring their services to my colleagues and business partners.
Sean T Pihl | Pihl Law Corporation, Kelowna, BC

The team at Peacock Sheridan Group has provided my business partners and myself with a wide range of financial advice for a number of years. We find them professional and reliable, with a real knack for explaining complex financial scenarios and alternatives.
Doug Patterson | TKS Apothecary Ltd, Kelowna, BC

Upon recommendation from a friend, we contacted Peacock Sheridan Group to discuss their strategies, our goals and what a move might look like. From our initial meeting, we could feel the difference their team made, looking at all areas of our financial health, to ensure all aspects were complimenting one another.
Kevin & Joanne Imthorn | Sawchuck Developments, Kelowna, BC

Since the team at the Peacock Sheridan Group takes the time to understand my situation and what my ultimate goals are, they are able to share only the specific solutions I need to explore.
Dr. Don MacRae | Peachland Dental Clinic, Peachland, BC

Innovative would be a key word I would use to describe the team at the Peacock Sheridan Group.
Greg Salloum | Business Entrepreneur, Kelowna, BC

Brent Peacock and Grant Sheridan have been two of my most trusted advisors for over 15 years in the areas of insurance planning and wealth accumulation.
Dr. Richard Bell | Okanagan Oral & Maxillofacial Surgery Associates, Kelowna & Vernon

I am very pleased with the business relationship I share with the Peacock Sheridan Group. The solutions they have designed for my family are key to our long-term financial security.
Rick Wright | Owner of Valley Mitsubishi, Kelowna, BC

Peacock Sheridan took the time to get to know me and my needs and as a result they have become a trusted relationship that I look to for their guidance and expertise.
Dr. Darren Buschel | Springfield Dental Centre, Kelowna, BC