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Personal FinanceExplainerPast Article

Averaging Purchases Is Not Magic

Spreading buys over time reduces the chance you bought only on the worst morning. It does not repeal a bad decade.

By Ruth Hale, Personal Finance Columnist

New York1 min read

Stone arches in a historic building
Stone arches in a historic buildingPhoto by Fr. Daniel Ciucci on Unsplash

Putting the same amount into an investment on a schedule means some purchases happen at higher prices and some at lower ones. The average price you pay is not the highest and not the lowest. That is the whole mechanism. It is arithmetic.

It is not protection against a long decline. If the thing you are buying falls for years, the later purchases are cheaper and the earlier ones are still down. Averaging changed your entry. It did not change what you own.

A schedule is a way of not needing a view on next Tuesday. It is a poor substitute for knowing what the investment is, what it costs to hold, and whether you can leave it alone. None of those questions is answered by the calendar.

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