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Is It The Right Time To Invest?

Deborah A. Williams, CFP

Are you wondering whether it's the right time to invest in the stock market? Stop wondering. With dollar cost averaging, it's always the right time.

Dollar cost averaging is a systematic investment strategy that makes it simple and affordable to invest a specific dollar amount, at regular intervals, for whatever length of time you decide. With dollar cost averaging, you automatically purchase more shares when prices are low and fewer shares when prices are high, thus achieving a favorable average cost per share. Here's how it works:

In the following example, we assume an investor purchases an investment on a monthly basis, using the same amount of money ($200) each time.

Month Price Per Share Shares Purchased Amount Invested
December $32 6.25 $200
January $28 7.14 $200
February $25 8.00 $200
March $31 6.45 $200
April $34 5.88 $200
May $40 5.00 $200

Total $190 38.72 $1200
  •  Average price per share: $190 ÷ 6 = $31.67
  • Average cost per share: $1200 ÷ 38.72 = $30.99

As you can see, the price per share of the investment was highly volatile-ranging from a high of $40 per share in May to a low of $25 per share in February-which resulted in an average price per share of $31.67; however, because the investor continued to systematically invest the same dollar amount each month, the average cost per share was only $30.99.

What does this mean for you? Ultimately, that this time tested strategy can help you make the most of market fluctuations thus avoiding the need to ask: Is this the right time to invest?

Please note: Dollar cost averaging does not assure a profit and does not protect against loss in declining markets. Additionally, as such a plan involves continuous investment in securities regardless of fluctuating price levels, investors should consider their financial ability to continue purchases through periods of low price levels.

Deborah A. Williams is a Financial Advisor and Certified Financial Planner at Legg Mason Wood Walker, Inc., a securities brokerage and financial services firm and member of the New York Stock Exchange, Inc. and SIPC.

Ms. Williams has over ten years of financial services industry experience. She is a licensed investment and insurance professional. Ms. Williams earned her bachelor's degree from the University of Maryland at College Park. Additionally, she has earned her Certified Financial Planner TM designation. Active in her community of Taneytown, MD., Ms. Williams volunteers her time with Rape Crisis Intervention Services.