Purchasing blue-chip stocks through dollar-cost averaging is a popular investment strategy for building long-term wealth. This strategy can lower the cost per stock during high market volatility, and build a good habit of accumulating valuable equity for retirement.
We share what the dollar-cost averaging strategy is, and how to find the best stocks to buy over the long term to build equity and increase your portfolio.
Contents
What Is Dollar-Cost Averaging?
Dollar-cost averaging is a long-term investment strategy that uses the same amount of money to purchase the same great stock at regular intervals. It can average the cost per stock, especially in a volatile market:
- Our budget can buy fewer stocks when the price is high.
- You can buy more units when the stock price drops.
Dollar-Cost Averaging vs Lump Sum Investing
We need to define both the investment budget and the investment interval.
Looking back on the price trends of AMD over the last year, we can see the stock price has been bearish during this period. We can simulate the dollar-cost averaging strategy for buying stocks on the first trading day of each month.
A $1,000 investment budget every month over the whole year lets us buy 114 stocks for $11,295.64.
On the other hand, a lump sum investment budget of $12,000 upfront lets us buy 95 stocks for $11,896.85.
| Trading days | AMD closing price | Dollar-cost averaging with $1,000/month | Lump sum with $12,000 | ||||
|---|---|---|---|---|---|---|---|
| Stocks purchased | Actual investment | Cost per stock | Stocks purchased | Actual investment | Cost per stock | ||
| 2021/11/1 | $125.23 | 7 | $876.61 | $125.23 | 95 | $11,896.85 | $125.23 |
| 2021/12/1 | $149.11 | 6 | $894.66 | $149.11 | |||
| 2022/1/3 | $150.24 | 6 | $901.44 | $150.24 | |||
| 2022/2/1 | $116.78 | 8 | $934.24 | $116.78 | |||
| 2022/3/1 | $113.83 | 8 | $910.64 | $113.83 | |||
| 2022/4/1 | $108.19 | 9 | $973.71 | $108.19 | |||
| 2022/5/2 | $89.84 | 11 | $988.24 | $89.84 | |||
| 2022/6/1 | $101.22 | 9 | $910.98 | $101.22 | |||
| 2022/7/1 | $73.67 | 13 | $957.71 | $73.67 | |||
| 2022/8/1 | $96.78 | 10 | $967.80 | $96.78 | |||
| 2022/9/1 | $82.33 | 12 | $987.96 | $82.33 | |||
| 2022/10/3 | $66.11 | 15 | $991.65 | $66.11 | |||
| Total | 114 | $11,295.64 | $99.08 | 95 | $11,896.85 | $125.23 | |
The average cost per stock is $99.08 for the dollar-cost averaging strategy, while the lump sum investment costs us $125.23 per stock. So a dollar cost averaging investment plan lets us reduce the cost per stock in a bearish market.
Advantages of Dollar-Cost Averaging
- Dollar-cost averaging lets us build a good habit in buying great stocks with mechanical regularity.
- It reduces how the market fluctuations impact our emotions. This can prevent us from making emotional and costly mistakes.
- It can average out the cost per stock during a volatile market, and reduce the pressure of timing the market.
- A good way to accumulate income-earning assets slowly over time without a large sum of money upfront.
When Dollar-Cost Averaging Doesn’t Work
- In a prolonged bullish market, the returns are lower than the lump sum investment strategy.
- This strategy only works for the long term, not the short term. An impatient investor may not get a good return if he cannot hold his nerves during a market downturn.
- Investing in poorly managed companies long term can lead to accumulating badly performing stocks and losses.
Great Stocks to Buy With Dollar-Cost Averaging
The Bullish Value Stocks is a list of blue-chip stocks fit for long-term investment, and it uses Fair Value to help us find undervalued opportunities. We also use technical analysis to help time the bullish trends.
By sorting the list by Upside, we can find value stocks with the greatest margin of safety. NTDOY is the most undervalued stock right now. Nintendo has a strong global brand, and its Nintendo Switch is one of the top 3 gaming platforms in the world, making NTDOY a competitive blue-chip company.
It is currently heavily undervalued with a 501% of Upside potential. It also has around 3% dividend yield per year, making NTDOY a good value stock to buy and hold for the long term.
The technical indicator, Long Signal Days, shows that Nintendo has had a bullish signal since 22 trading days ago, so now is a good time to enter the bullish trade.
Now you know the pros and cons of dollar-cost averaging, you can use the Bullish Value Stock list to invest in undervalued stocks for the long term. It is a good strategy to average the cost per stock and accumulate equity.
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