TORONTO, ONTARIO--(Marketwire - Feb 1, 2013) - BMO InvestorLine reminds Canadians of the value of implementing a dollar-cost averaging (DCA) investing strategy to their portfolio, particularly given the volatile market environment.
DCA involves investing a fixed amount of money on a regular basis - whether the market is up or down - over a specific period of time. As a result, an investor buys fewer shares when prices are high and more when prices are low.
"Over a longer time horizon, this strategy offers the potential to accumulate more shares of a company or units of a fund at a lower cost per share than if invested as a one-time, lump sum," said Viki Lazaris, President & CEO, BMO InvestorLine. "By investing systematically, an investor will be less tempted to make decisions on the basis of short-term events and their emotions. As a result, their fortunes will not depend on their ability to make the right call, at the right time, about future trends."
BMO''s Psychology of Investing Study found that two in five Canadians investors (40 per cent) say that their emotions play a role in their investing decisions. The study also revealed that nearly 60 per cent of Canadians say they have invested on impulse at least once.
To maximize savings, and help keep emotions in check, Ms. Lazaris offers the following tips to make the most of DCA:
Invest Long Term: A DCA investor decides the time horizon over which all of the investments are made. With a shorter time horizon, the strategy will be more similar to lump-sum investing; as a result, investors may not reap the averaging benefits of DCA.
Maintain Market Awareness: Since DCA involves continuous investing regardless of fluctuating prices, keep actively investing on your own through periods of low price levels.
Acknowledge the tradeoff: If markets trend upward, you would have been better off investing the entire lump sum as early as possible. And if prices move steadily downward, you would have been better off investing the lump sum near the bottom. But unfortunately no one can predict the future, and using a disciplined strategy like DCA is likely to deliver better long-term results than trying to time the market.
Consider pre-authorized contributions: BMO InvestorLine''s Self Directed and adviceDirect services offer clients the ability to set up regular, intervalled contributions so they can benefit from DCA.
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BMO InvestorLine Inc. and BMO Ligne D''action Inc. provide this commentary to clients for informational purposes only. The information contained herein is based on sources that we believe to be reliable, but is not guaranteed by us, may be incomplete or may change without notice. The comments included in this document are general in nature, and professional advice regarding an individual''s particular position should be obtained.
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