The pros and cons of dollar-cost averaging

Dollar-cost averaging is the practice of investing a consistent dollar amount into a given investment on a regular basis. This allows you to invest no matter how well the markets are performing. However, as is the case with any investment strategy, you need to consider the potential pros and cons. It will help you to decide whether it’s the right way to invest for you.

Pros

• Ensures disciplined investing to help you save more. With a consistent dollar amount invested regularly, such as through pre-authorized deposits, you may find that you don’t need to think about your investment strategy all the time. Or worry that you’ve forgotten to contribute. Dollar-cost averaging thereby becomes a simple, hassle-free way to be a disciplined saver. Further, because you are consistently investing, this approach may help you to save more money over time.
• Reduces the effects of market volatility. Whether periodic purchases are scheduled weekly, monthly, or quarterly, they come with the certainty that unit prices each time you buy will differ. This may lower the average cost of investing and allow you to purchase more units. It will also reduce the effects of volatility on your portfolio by smoothing out the average cost per unit of your investment over time.
• Avoids the stress of market timing. Traders and other financial professionals time entering and exiting the market as part of their strategy. Most individual investors find this practice stressful and are rarely successful. It’s not easy to time optimal moments to buy or sell. Dollar-cost averaging helps mitigate worry because you’re not trying to time the market.

Cons

• Possible loss of return. When markets are rising steadily, you may miss out on certain gains when making several smaller purchases at different times. However, over the long term, the strategy of dollar-cost averaging reduces this risk.
• Patience is important. Dollar-cost averaging offers the greatest benefit to investors who have a long-term investment horizon and can afford to be patient. Especially if they started such a discipline early on in life. If you don’t have a long-term investment horizon, it may not be the best way for you to invest.

In short, dollar-cost averaging can be an attractive option for investors who:

• are investing with a long-term horizon,
• can afford to be patient,
• want to invest hassle-free with a disciplined approach.

To ensure that dollar-cost averaging is the right option for you, talk to an advisor. They’ll assess your situation. And then confirm that this approach makes sense for you and consider your financial objectives and risk profile.

Here are some products to consider with a dollar-cost averaging strategy:

Sun Life MFS Diversified Income Fund
Sun Life MFS Global Growth Fund
Sun Life MFS International Opportunities Fund

The information contained in this document is provided for information purposes only and is not intended to represent specific individual financial investment, tax or legal advice nor does it constitute a specific offer to buy an/or sell securities. While the information contained in this document has been obtained from sources believed to be reliable, SLGI Asset Management Inc. cannot guarantee its accuracy, completeness or timeliness. Information in this document is subject to change without notice and SLGI Asset Management Inc. disclaims any responsibility to update it.