Dollar Cost Averaging & Fund Suitability — Q&A

Diversification and fees. Pooled vehicles provide instant diversification and professional management but charge expense ratios, sales charges, 12b-1 fees, management fees, and other costs.

Retail investors who lack the time or expertise to research and monitor individual securities.

Investing a fixed dollar amount at regular intervals over time to reduce market timing risk.

The same fixed dollar amount buys more shares at lower prices, spreading purchases across levels and tending to lower the investor’s average cost per share.

Average cost = $4,000 ÷ 337.5 shares = $11.85. Average price = ($20+$16+$10+$8) ÷ 4 = $13.50.

Average cost will be lower than average price because more shares are purchased when prices are lower.

A one-time $100,000 investment before the Great Recession took over four years to recoup losses. Larger one-time investments face greater exposure to a sharp decline soon after investing.