Dollar-Cost averaging

We're often advised to put away a little money every month. This approach works well for those of us in the work force. We get our paychecks and immediately turn around and add a little to our savings. If our employer offers a 401(k) plan, this regular saving might even be automatic, with our 401(k) contributions pulled out of our income and stashed directly in the investments we choose.

But while regularly saving a fixed amount may be a fine idea, does it have any special investment merit? Some think so--and they point to a stock-market buying strategy known as dollar-cost averaging, which involves investing the same dollar amount every month.

Setting up a program of regularly investing in the stock market is admirable, but if you're considering dollar-cost averaging, a word of caution may be in order.

What is dollar-cost averaging? Imagine you invest $100 a month in a stock-mutual fund. Your first investment takes place at $10 a share, which means your $100 buys 10 shares. A month later, the market crashes, the fund's shares are at $5 and your $100 investment purchases 20 shares. A few weeks after that, the shares rebound to $7.50, exactly halfway between your two purchase prices. Yet your 30 shares, for which you paid $200, are now worth $225--giving you a $25 profit.

Magic? Hardly. You get this hypothetical result simply because your fixed monthly investment buys more shares when the market goes down. If you wanted to make this hypothetical example even more impressive, all you have to do is assume the amount invested increases when share prices fall.

More important, dollar-cost averaging is a bet that investments that go down will come back up. That's more likely to happen with stock funds, which might own shares of 100 or more companies, than with individual stocks, which could get into financial trouble and never recover. But even with stock funds, there are no guarantees. The bottom line: Regularly investing $100 or $200 is a great habit to get into. But there's nothing magical about investing the same dollar amount every month--and you shouldn't assume it's a surefire way to make money.

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

The information provided here is for informational purposes only. It is not an offer to buy or sell any of the securities, insurance products, investments, or other products named.

Terms, conditions and fees for accounts, products, programs and services are subject to change.

Dollar cost averaging does not always ensure a profit or protect against a loss. Since such a strategy involves continuous investment, you should consider your ability to continue purchases through periods of low price levels.

Remember, when investing in mutual funds please consider the investment objectives, risks, charges, and expenses of the fund carefully before investing. You may obtain the appropriate prospectus by contacting a Financial Advisor. The prospectus contains this and other information, which should be carefully read before investing.

These strategies do not necessarily represent the experience of other clients, nor do they indicate future performance or success. The investment strategies presented are not appropriate for every investor.

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