Dollar cost averaging

In this detailed worksheet, students will explore the concept of dollar cost averaging, a popular investment strategy that involves regularly investing a fixed amount of money into a particular stock or fund. Through a hands-on simulation, students will gain practical experience and insights into how this strategy works and its potential benefits compared to lump-sum investing.

Objectives:

• Understand Dollar Cost Averaging: Students will learn the importance of investing a fixed amount regularly to potentially reduce the impact of market volatility.
• Practical Simulation: Students will simulate investing $250 every month for 10 months in the stocks of a fictitious company.
• Calculations and Analysis: Students will calculate the number of units bought and the investment value at the end of each month.
• Comparison with Lump-Sum Investing: Students will analyze the loss they would have incurred if they had invested $2500 in a lump sum at the beginning of the period.

Key Learning Outcomes:

• Mitigating Market Volatility: Students will understand how dollar cost averaging can help mitigate the risks associated with market fluctuations by spreading out investments over time.
• Investment Strategy Evaluation: By comparing the two strategies, students will learn to evaluate different investment approaches and make informed decisions based on their financial goals and market conditions.
• Critical Thinking: The worksheet encourages students to think critically about investment strategies and their impact on long-term financial outcomes.