A. Dollar Cost Averaging is a technical term used to describe a system of investing a equal dollar amount at regular intervals, such as monthly, in a group of securities. It provides an easy and convenient way to save for the future and it eliminates the guesswork of knowing when it's the right time to invest. By following this strategy, you will purchase more shares when prices are low, and fewer shares when prices are high. Dollar Cost Averaging is a disciplined approach to investing. It helps you focus on your long-term financial goals, not on short term market conditions. While this technique does not ensure a profit or guarantee protection against loss in a declining market, over the long term you can lower your average cost per share below the average of the prices at which you purchase shares. To make Dollar Cost Averaging work for you, however, you must be prepared to stick to the strategy in down or up markets Furthermore, you must think of it as a long-term commitment of at least five years, preferably longer.

The following is a short example of how Dollar Cost Averaging can help you save for your future.

$120 invested each month for four months.

Total invested $480

Month     $ per share     # of shares bought

    1                6                         20

    2                4                         30

    3                8                         15

    4               10                        12

                    28        Total          77

In this example, more shares were purchased during the months when the price was low and less were purchased when the price was higher. This will result in a lower average cost per share. In this example, the average market price was $7.00 per share. This is calculated by totaling the prices paid and dividing by the number of payments. ($28 / 4 = $7). The average cost is less at $6.23 per share. This is calculated by dividing the total amount invested by the number of shares. ($480 / 77 = $6.23)