One of the easiest and most effective ways to put your investment plan into action is with systematic approach called dollar-cost averaging. The idea behind dollar cost averaging is to take advantage of the markets natural cycles and to help you build wealth over time by making investing a priority.
Here's how it works:
1. Choose an investment.
2. Select an amount.
3. Set an interval for your investments, such as monthly or quarterly.
Say, for example, that you choose a core stock fund and plan to invest $100 each month. As you can see by the table below, you’ll end up by buying more shares when your fund’s share price is low- and fewer when the price is high. Over time your average cost per share should be lower than if you had invested all at once.
|At the fund's current
share price of...
|And purchase this number
This table is for illustrative purposes only and does not depict an actual investment of any John Hancock fund. Your actual results will vary. Dollar cost averaging involves continuous investing in securities. You should consider your financial ability to continue making purchases through periods of low price levels. Dollar cost averaging does not ensure a profit and does not protect against loss.
You can choose more than one fund for your dollar cost averaging strategy and divide your money in proportion to their weight in your asset allocation plan. To make dollar cost averaging as easy as possible, your investment can be transferred electronically from a bank account or a money market account so that you don't even need to write a check. Automatic dollar cost averaging plans are flexible, and you can change or cancel them at any time.
Benefits of dollar - cost averagingWhen you dollar cost average, you put several key principles of investment success to work in your profile. First, dollar cost averaging ensures that you invest regularly. Excellent returns won't add up to much unless you build the size of your account. Second, dollar cost averaging can help you avoid a common investment mistake: Trying to time your investments to what is happening in the markets. It's tempting to jump in with a big investment when the markets are soaring. And you may feel like sitting on the sidelines when the markets are falling. But remember, investment success is a long-term process and dollar-cost averaging is a long term strategy. It won't ensure a profit or protect against a loss. And you should consider your ability to continue to make regular investments over time. But dollar cost averaging can help you avoid the short term traps that can derail any portfolio and it can help you keep your long-term goals on track.
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