Patients

Ask any astute investor the key to successful investing and the answer will be patience. This is perhaps the most difficult lesson any investor can learn.

Hand-in-hand with patience goes the time-tested discipline of investing for the long term. Money managers will tell you that, in most cases, a long-term approach to investing is a wise choice.

Dollar-cost averaging is an important tool investors can use to bring stability and discipline to an investment portfolio. This method of systematic investing helps minimize risk while making investment dollars work harder.

Let's imagine that you use a periodic investment program in which you select a mutual fund and then buy the same number of shares each quarter, no matter what the price. You buy 100 shares each quarter for four quarters, and sell the whole investment in the fifth quarter (Case A).

Now let's use the same mutual fund, with the same price movement-but instead of buying 100 shares each quarter, let's say you're investing $1,000 each quarter. Again, you sell the whole investment in the fifth quarter (Case B).

Here are the results of the two strategies:

Case A

Month	Investment	Price	Shares Bought	Shares Sold	Proceeds
March	$1,000	$10	100.00
June	$800	$8	100.00
September	$1,000	$10	100.00
December	$1,200	$12	100.00
March		$13		400	$5,200.00

 

Case B

Month	Investment	Price	Shares Bought	Shares Sold	Proceeds
March	$1,000	$10	100.00
June	$1,000	$8	125.00
September	$1,000	$10	100.00
December	$1,000	$12	83.33
March		$13		408.33	$5,308.33

In both cases, you've invested the same total amount of money in the same fund at the same times, at the same prices, and sold at $13 a share.

But by investing the same amount of money each period, you've bought more shares when prices were low, fewer shares when prices were high. So instead of 400 shares for your original investment of $4,000, you bought 408.33 shares. Your average price per share was $9.80 instead of $10. The result? Instead of 30%, you've made 33%. Dollar-cost averaging has put you $108.33 ahead.

Of course, dollar-cost averaging in itself does not ensure a profit. If you sell your shares at less than the average price you paid for them, you'll have a loss. However, dollar-cost averaging does lower the price you have to get to break even.

If you can set aside a specific amount of money periodically, and invest it in a security that should rise in value over time, you're making full use of dollar-cost averaging-an investment discipline that makes sense for intermediate- and long-term investors.

ENB Associates Inc. is a wholly owned subsidiary of Evans National Bank. Securities are offered by O'Keefe Shaw & Co., Inc. Member NASD, and SIPC. Products purchased through O'Keefe Shaw may lose value, are not deposits with obligations of, or guaranteed by Evans National Bank or affiliates and are not insured by the FDIC.