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To Invest or Not to Invest: A Closer Look at Dollar Cost Averaging

hand putting money into a clear jar of money in the foreground with the rest of the person in the background writing in a notebookThis months Go Greenhow submission is provided by Financial Advisor, Blake Steedley.

Do you ever sit and wonder what you should do with the extra cash you have lying around? Some people decide to take on DIY projects while others choose to invest it. If you’re thinking about doing the latter, then there are multiple factors you should consider. For example, should you invest it all at once, or should you do Dollar Cost Averaging, which means investing the same amount over time intervals.

The worst thing you can do is decide on one of these options without doing any research or do something without financial planning. There are plenty of factors to keep in mind before you aimlessly invest. To help decide on what investment strategy might be best suitable for you, consider what stage of life you are in, what you are trying to achieve, how much you’re investing, and how you’ll feel psychologically if the market declines. This piece will go in-depth as to what Dollar Cost Averaging is and dive into the pros and cons of the decision.

magnified Personal 401K paper with upper left corner's description and contribution type taking up the image The Pros and Cons of Dollar Cost Averaging

If you have a retirement plan through work and defer a portion of your check each pay period to contribute to the retirement plan, then you are already using the dollar cost averaging approach. Again, dollar cost averaging means you invest the same amount of cash over different time intervals. So, by contributing $1000 at the end of each month, you benefit by reducing the impact of market volatility on your investment. You also benefit by acquiring shares of the investment at a lower cost per share.

wooden scrabble letters standing up to spell "patience" with scattered letters out of focus around the wordThere are some cons of using dollar cost averaging, as well. One risk of using this investment approach is if the market increases over the period of your investment purchases, the cost per share would also go up. The dollar cost averaging approach takes discipline too. Most people are prone to sell when their investments start declining, so you must stick to your plan and keep investing.

Before you invest your money, consult with your financial advisor to see which investment strategy might be best suitable for you. Your Allen & Company advisor will help you determine what’s the best route for you.

April 2021

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Since dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities, an investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets. Investing involves risk including loss of principal.

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