Investor Learning Centre

Dollar-cost averaging

Dollar-cost averaging does not tell you what investment to buy (that's between you and your advisor), but it does do away with the problem of trying to figure out when to buy.

With dollar-cost averaging, you buy the same amount of a particular investment on a regular basis regardless of the price. So let’s say every three months you purchase $1,000 worth of units of the same investment. With fluctuations in the marketplace, sometimes the cost per unit will be higher, sometimes it will be lower. When the price is lower, you end up buying more shares than when the price is higher. Over time, it works out that you buy more shares when the price is low and end up with more units in total than you would if you tried to figure out when the market was going to provide you with the best outcome.

Example: An investor buys $3,000 worth of XYZ Funds on the first day of January, April, July, and October every year. The accompanying table shows the price per unit (disregarding fees and commissions), the number of units purchased, the accumulated number of units in the investor's portfolio and the average cost per unit held.

When the price per unit rises, the number of units that can be bought with a given amount of money declines. As the table shows, at a price of $15.50 per unit, $3,000 buys 193.55 units. If the price is $28.75 per unit, $3,000 buys only 104.35 units.

On October 1, the investor will have invested a total of $12,000 and will own 654.77 units. The average cost per unit at that time is $18.33.

The average of the quarterly prices of the unit listed in the table is $19.75 ($15.50 + $20.50 +14.25 + 28.75 divided by four). The investor has paid 7.19% less by using dollar-cost averaging.

Copyright © by The Canadian Institute of Financial Planning - Used by permission

Pre-Authorized Chequing Plan

You can purchase any Fund in the AIC family by making regular investments through an AIC
Pre-Authorized Chequing Plan. For a minimum initial and subsequent investment of $50, you can invest bi-weekly, monthly, bi-monthly, quarterly, semi-annually or annually – whichever you’re most comfortable with. By establishing a PAC, you can budget for your particular needs. Investing becomes "invisible" and you can take advantage of dollar-cost averaging.

Benefits of a Pre-Authorized Chequing Plan (PAC):

  • Convenience – no need to remember to sign and send a cheque each month to invest
  • Flexibility – you can change or stop your plan at any time
  • Peace of mind – regular investing means not having to worry about investing at a “high” point in the market or missing an opportunity to invest at low prices – in effect, you get a more “average” investment price
  • Predictability – PAC plans make budgeting for investing easier
  • Discipline – your PAC ensures that you don’t try to "time" the market, and it ensures you continue to invest when markets are down (when you have the best opportunities to invest at cheaper prices)

Use a PAC plan to build your wealth without thinking about it. Call your financial advisor for
more details.
Resources  


AIC Client Services 1-800-263-2144 or e-mail info@aic.com
Buy. Hold. And Prosper.®

The AIC Logo and BUY. HOLD. AND PROSPER. are registered trademarks of AIC Global Holdings Inc. Used under license by AIC Limited.