Broker Check

Dollar Cost Average During Down Markets

May 03, 2022

Down markets are especially difficult to be a buyer, but history shows these are the best opportunities for outsized long-term returns. 

To limit the pain of purchasing as prices are falling, it is prudent to elect a dollar cost average approach. Take the following example below...

I wish to buy $10,000 worth of company ABC stock. The stock currently trades for $100 per share. If I were to spend my full $10,000 right now, I would buy 100 shares. 

$10,000 = $100 per share x 100 shares

If instead, I used a dollar cost average approach, I could purchase the stock at different prices per share. Let's use a down market as an example. 

I still wish to buy $10,000 worth of company ABC stock, but I decide to purchase half today, and half in one week. For this example, let us say that the current price is $100 per share, but the price next week drops to $90 per share.  

$5,000 = $100 per share x 50 Shares
$5,000 = $90 per share x 55.55 Shares

By using this approach, you were able to increase your shares and decrease your average cost per share. 

This strategy is especially useful in down markets but is a strong strategy to employ at any time, given the volatility of the stock market. 

Please Schedule a Meeting if you would like to discuss this specific strategy for your portfolio. 

To your future financial success,

Alex Orlando