Wealth Insights & Tools Menu

Dollar Cost Averaging

If you haven't started investing towards a long-term goal because you're worried about short-term market volatility, consider using a popular investment strategy called dollar cost averaging. Dollar cost averaging takes some of the guesswork out of investing in the stock market. Instead of waiting to invest a single lump sum until you feel prices are at their lowest point, you invest smaller amounts of money at regular intervals—the same amount each time—no matter how the market is performing. Your goal is to reduce the overall cost of investing by purchasing more shares when the price is low and fewer shares when the price is high. Although dollar cost averaging can't guarantee a profit or protect against a loss in a declining market, over time your average cost per share is likely to be less than the average market share price.

How does dollar cost averaging work?

To illustrate how dollar cost averaging works, let's say that you want to save $3,000 each year. To reduce the risk of buying when the market is high, you decide to invest $250 in a mutual fund each month. As the following chart shows, this approach can help you take advantage of fluctuating markets because your $250 automatically buys fewer shares when prices are higher and more shares when prices are lower.

Month Investment amount Market price per share Number of shares purchased
January $250 $10 25
February $250 $10 25
March $250 $11 22.72
April $250 $12 20.83
May $250 $11 22.72
June $250 $13 19.23
July $250 $14 17.86
August $250 $13 19.23
September $250 $14 17.86
October $250 $12 20.83
November $250 $10 25
December $250 $11 22.72

This chart is a hypothetical example and does not reflect the return of any specific investment.

If you calculate the average market price per share over the 12-month period ($141 divided by 12), the result is $11.75. However, if you calculate your average cost per share over the same period ($3,000 divided by 259 shares), you'll see that on average, you've paid only $11.58 per share.

Putting dollar cost averaging to work for you

You may not realize it, but if you're investing a regular amount in a 401(k) or another employer-sponsored retirement plan via payroll deduction, you're already using dollar cost averaging. In fact, you can use dollar cost averaging to invest for any long-term goal. It's easy to get started, too. Many mutual funds, 529 plans and other investment accounts allow you to begin investing with a minimal amount as long as you have future contributions deducted regularly from your paycheck or bank account and invested automatically.

If you're interested in dollar cost averaging, here are a few tips to help you put this strategy to work for you:

Questions?

Contact an advisor

Or call

1.855.329.3258

Learn more about our financial planning tool

Resource to help with financial planning and wealth management

Learn More

Use our Calculators

Access tools to help plan for your future

Learn More
Email your question or comment

Thank you for your inquiry. A First Citizens Representative will contact you shortly.

An error occurred while sending your request. Please try again.

To get additional information or to send a comment about First Citizens Bank, our products and services, please complete the online form below.

* indicates required field

Request a Call

Thank you for your inquiry. A First Citizens Representative will contact you shortly.

An error occurred while sending your request. Please try again.

Would you like to know more about our products and services? Give us your name, phone number, area of interest and what time is convenient for you. We will have a qualified First Citizens associate contact you to answer your questions.

* indicates required field

Personalize Your Banking Experience

First Citizens Bank product offerings differ from region to region. In order to accurately display information on accounts, rates and special promotions specific to your area, please enter your 5-digit ZIP Code below.

Email

Thank you for your inquiry. A First Citizens Representative will contact you shortly.

An error occurred while sending your request. Please try again.

To contact , please complete the following form.

* indicates required field

Deposit cash or checks without an envelope 24 hours a day, seven days a week

Learn more »

Please Upgrade your browser

Your Browser Is Not Supported – Please Upgrade

In order to view and use certain First Citizens Bank products, services and webpages, we recommend that you use a current version of one of the following browsers. You can upgrade your existing browser by clicking one of the links below. You will need to restart your computer in order to complete the upgrade.

We strongly recommend that you upgrade now.

If you do not upgrade your browser, you may experience functional or display issues on the pages you are attempting to access.