Ralph Moss Limited

KEYS TO INVESTING
Our simplified guide to basic principles, and how you can benefit
Dollar-cost averaging

No doubt you've seen the term "dollar-cost averaging" or "dollar-averaging" bandied about in the popular press. Banks, trust companies, and mutual fund organizations like to promote it as a way to average down, or reduce, your price for shares, mutual fund units, and other investments.

While it's true that dollar-cost averaging can have this effect in the right circumstances, there's a lot more to it.

• WHAT IT IS.Dollar-cost averaging is the result of investing a fixed amount of money at regular intervals, in stocks, bonds, or other investments, regardless of the unit price of the investment. Many investors buy units of equity funds because of the stock market's history of increasing value over the long term.
• HOW IT WORKS. When the price of the security or mutual fund unit is high, your regular investment buys fewer shares. When the price is low, your money buys more. That's where the dollar-cost averaging comes in -- you are averaging down the dollar cost of your investment.

For example, if Fund A is worth $10 per unit in August and drops to $5 in September, the average price is $7.50. But if you invest $100 to buy 10 units in August and another $100 to buy 20 units in September, your average purchase price is only $6.67.

Of course, dramatic numbers like these tend to exaggerate the benefits, and the price changes used in many similar examples may not be realistic. However, over the long term, dollar-cost averaging may very well reduce your price per unit by a few cents, and possibly more.

· WHY IT MATTERS Saving a few cents where you can is always to your benefit. But the true value of dollar-cost averaging lies in what it represents: your ongoing commitment to an investing program. You can benefit from regular investing in your Registered Retirement Savings Plan or non-registered investment portfolio, and get the advantage of dollar-cost averaging.

The key is to pay yourself first. Then, stick with the plan, even when markets experience a temporary decline. In the long run, you stand to come out ahead.