Investment Strategy: Dollar-Cost Averaging
DOLLAR-COST AVERAGING: Investing over the long term
“Dollar-cost averaging" --- according to financial experts --- is a sensible way to ride out the ups and downs of the financial markets and reduce financial risks.
- When you open a savings account at a bank, you’re guaranteed a certain return on your investment. This return is determined by the bank’s interest rate.
- When you invest in “equities" (stocks and bonds), you are not guaranteed a set return. Instead, the value of your account fluctuates as financial conditions change.
- Even so, stocks and bonds (equities) historically offer better returns than savings accounts over the long term, even though at any particular time you could lose part of your investment.
How dollar-cost averaging helps
- Dollar-cost averaging enables you to minimize possible losses by investing an equal amount each month.
- This way, you buy more “shares" when prices are low and fewer shares when they are high. The average cost of each share will likely be lower than if you jump in and out of the market by investing at what you think is the right time.
- This doesn’t guarantee higher returns or ensure that you won’t lose money, but it’s a prudent way of investing for a long-term goal such as a college education for your child.
Make it work for you!
- Consider investing in the Vermont Higher Education Investment Plan --- the only 529 college investment plan that offers Vermonters exceptional tax breaks on both federal and state taxes.
- Through VHEIP, you can make low minimum, but regular, contributions with as little as $25 per investment option.
- If your employer offers payroll deduction, you can contribute as little as $15 per investment option per pay period.
- Call 800-637-5860
- Visit www.vheip.org