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Dollar Cost Averaging: A Systematic Way to Build Wealth

Dollar cost averaging can be an effective strategy, especially during periods of uncertainty.

Client Conversations gives financial advisors an easy way to communicate with clients on topics influencing financial markets; it highlights common investor behaviors and offers ways to address the challenges investors face. Share this article with your clients, and remember to follow your firm's policies that govern sharing content with clients and prospects.

Client Conversations gives financial advisors an easy way to communicate with clients on topics influencing financial markets; it highlights common investor behaviors and offers ways to address the challenges investors face. Share this article with your clients, and remember to follow your firm's policies that govern sharing content with clients and prospects.



You may be wondering if now is a good time to invest. But waiting for the right time to get into the market could cause you to miss out on significant gains.

Dollar cost averaging is a strategy in which you invest a consistent amount on a recurring basis (i.e., monthly, quarterly, etc.) regardless of market conditions. It can be an effective way to systematically build your wealth.

The table below contrasts the results of three different investors who invested $10,000 per year in the S&P 500 Index.

All three investors enjoyed significant gains because time in the market matters much more than timing the market.

 

Lucky, Unlucky, and Systematic Investors All Fared Well by Investing Regularly

Unlucky Investor
Invested Each Year at the Market High
Systematic Investor
Invested on the First Day of Each Year
Lucky Investor
Invested Each Year at the Market Low
Date Cumulative Investment Value Date Cumulative Investment Value Date Cumulative Investment Value
3/24/2000 $10,000 $10,000 1/3/2000 $10,000 $10,000 12/20/2000 $10,000 $10,000
1/30/2001 $20,000 $19,079 1/2/2001 $20,000 $19,177 9/21/2001 $20,000 $17,710
1/4/2002 $30,000 $26,491 1/2/2002 $30,000 $26,898 10/9/2002 $30,000 $24,476
12/31/2003 $40,000 $35,999 1/2/2003 $40,000 $30,953 3/11/2003 $40,000 $35,431
12/30/2004 $50,000 $49,970 1/2/2004 $50,000 $49,832 8/12/2004 $50,000 $58,217
12/14/2005 $60,000 $63,338 1/3/2005 $60,000 $64,807 4/20/2005 $60,000 $73,036
12/15/2006 $70,000 $82,382 1/2/2006 $70,000 $78,546 6/13/2006 $70,000 $90,314
10/9/2007 $80,000 $101,713 1/2/2007 $80,000 $100,952 3/5/2007 $80,000 $112,816
1/2/2008 $90,000 $105,860 1/2/2008 $90,000 $116,498 11/20/2008 $90,000 $74,018
12/28/2009 $100,000 $95,281 1/2/2009 $100,000 $83,396 3/9/2009 $100,000 $77,205
12/29/2010 $110,000 $118,612 1/4/2010 $110,000 $115,466 7/2/2010 $110,000 $129,989
4/29/2011 $120,000 $139,137 1/3/2011 $120,000 $144,368 10/3/2011 $120,000 $153,287
9/14/2012 $130,000 $164,245 1/2/2012 $130,000 $155,762 1/2/2012 $130,000 $186,410
12/31/2013 $140,000 $223,044 1/2/2013 $140,000 $190,689 1/2/2013 $140,000 $226,242
12/29/2014 $150,000 $267,444 1/2/2014 $150,000 $262,450 2/3/2014 $150,000 $292,560
5/21/2015 $160,000 $284,848 1/2/2015 $160,000 $308,375 8/25/2015 $160,000 $334,110
12/13/2016 $170,000 $324,178 1/4/2016 $170,000 $322,642 2/11/2016 $170,000 $340,619
12/18/2017 $180,000 $401,768 1/2/2017 $180,000 $371,230 1/2/2017 $180,000 $435,023
9/20/2018 $190,000 $454,106 1/2/2018 $190,000 $462,276 12/24/2018 $190,000 $485,082
12/27/2019 $200,000 $524,943 1/2/2019 $200,000 $452,008 1/3/2019 $200,000 $515,391
12/31/2019 $523,547 12/31/2019 $594,329 12/31/2019 $693,806

 

Data Sources: Morningstar and Hartford Funds, 3/20. Past performance does not guarantee future results. Assumes reinvestment of dividends and capital gains and no taxes or transaction costs. The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks. The Index is unmanaged and not available for direct investment. For illustrative purposes only. Dollar-cost averaging neither assures a profit nor protects against a loss. Because systematic investing involves continuous investing regardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.

 

Talk to your financial professional today about setting up a systematic investing strategy to help you build long-term wealth.





 

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