investing

STOCKWATCH

Managing Dollar Cost Averaging know that fluctuations in the market are inevitable and that predicting those swings is difficult at best. Even so, some investors respond to -term market changes by selling when the market is falling and buying when the market is rising.

To avoid this situation, you may strategy, then sign up Instead, as the chart shows, by want to consider dollar cost averag- for a systematic monthly invest- purchasing $200 worth of shares ing—the steady investment of equal ment program, which will allow every month from January through dollar amounts at regular intervals, them to invest regularly.” June, that same would pay which can add structure to your For example, if an investor an average price per share of only investing and help you follow bought $1,200 worth of shares in $22.60 and own 53.09 shares over- your -term investment plan. January at $31 per share and all—not as good as buying 85.7 Always in the Market Often, when markets are rising, Dollar Cost Averaging Illustrated investors feel they are “missing January February March April May June out,” and their response is to buy. Amount invested $200 $200 $200 $200 $200 $200 Total $1,200 On the other hand, when markets Share price $31 $21 $14 $26 $28 $25 Average price are falling, some investors feel that $22.60 they are not “making money” and Shares bought 6.45 9.52 14.29 7.69 7.14 8.00 Total 53.09 either sell or avoid buying alto- This example is for illustrative purposes only and does not represent any actual investment. gether. With dollar cost averaging, you keep buying shares during mar- ket ups and downs, so more shares happened to purchase those shares shares but considerably better than are automatically purchased when at the market high, he or she would purchasing only 38.7 shares. In prices are low and fewer shares are own 38.7 shares. On the other other words, by purchasing steadily purchased when prices are high. hand, if the same investor bought during times of market price fluctu- Christine Fahlund, a senior finan- $1,200 worth of shares in March at ations, the investor benefited from cial planner at T. Rowe Price, says, the market low of $14 per share, he buying more when the market was “Investors should create a long-term or she would own 85.7 shares. low (February and March) and less when the market was high (January, We Make It Easy April, May, and June). By automating purchases, you can take advantage of price fluctuations Commit to an automatic regular investment plan and take advantage of dollar cost and also reduce the worry about averaging with T. Rowe Price’s Automatic Asset Builder. This service allows you to whether your purchases were invest as little as $50 per month ($100 for Summit Funds) in any T. Rowe Price properly timed. Using dollar cost mutual fund through automatic deductions from your bank account, paycheck, or averaging can result in acquiring Social Security check. shares at a lower average cost than To establish Automatic Asset Builder, log in to your account at troweprice.com/access, if they were purchased all at once, or call a T. Rowe Price investment specialist at 1-800-401-1788. oftentimes enabling you to purchase more shares over the long run.

Systematic investing does not assure a profit or protect against losses in declining markets. Since these plans involve continuous investment in securities regardless of fluctuating share prices, investors should consider their ability to continue making purchases through periods of low price levels.

10 T. ROWE PRICE INVESTOR JUNE 2004 T. Rowe Price Investment Services, Inc. distributor 65877 11/07