Dollar Cost Averaging Visual Guide
Description: The illustration is divided into three sections, each representing a different scenario of investing $100 monthly in a stock with fluctuating prices over a period of six months.
Section 1: Scenario without Dollar Cost Averaging (DCA)
- Month 1: Stock price is $10 per share. Investor buys 10 shares with $100.
- Month 2: Stock price rises to $15 per share. Investor buys 6.67 shares with $100.
- Month 3: Stock price drops to $8 per share. Investor buys 12.5 shares with $100.
- Month 4: Stock price rises to $12 per share. Investor buys 8.33 shares with $100.
- Month 5: Stock price drops to $6 per share. Investor buys 16.67 shares with $100.
- Month 6: Stock price rises to $18 per share. Investor buys 5.56 shares with $100.
At the end of six months, the investor owns a total of 59.73 shares with an average cost per share of approximately $11.24.
Section 2: Scenario with Dollar Cost Averaging (DCA)
- Month 1 to 6: Investor consistently invests $100 monthly in the stock, regardless of price fluctuations.
At the end of six months, the investor owns a total of 50 shares with an average cost per share of $10.
Section 3: Comparison
- The section compares the total number of shares and average cost per share between the two scenarios.
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This illustration visually demonstrates how Dollar Cost Averaging can result in a lower average cost per share compared to investing a fixed amount at irregular intervals.