How I accidentally discovered the power dollar cost averaging

Taking the plunge
My first foray into $25.00 investing was of course into the stock market.  There are several low cost brokerage companies like M1 Finance where you can buy fractional shares of stock.  These allow you to own less than a single share of stock and often have little or no fees.  A seemingly perfect match for my goals of creating consistent income $25.00 at a time.

I have always wanted to own some shares of The Walt Disney Company.   My plan was to invest my first $25.00 and buy a fractional share, buying more over time.  At the time DIS was trading at around $115.00 a share so I knew it would take several investments to finally reach a single share.

I placed my order and took the plunge.  The order executed at about $112.00 dollars a share, giving me about .22 shares of DIS.  My journey had begun.

And the price dropped.  I felt like someone had kicked my puppy.  Didn't these people realize that the stock was supposed to go up after I bought it?

Fortunately for me, I stuck to my plan.  I made my regular $25.00 purchases over the next weeks.  Soon I had reached my goal of owning a single share of stock.

More importantly, I learned some important lessons.

First, the lower the stock price, the more my $25.00 bought.  When the price reached $100 per share, my investment bought .25 shares.  This is of course obvious and I knew it.  But watching it happen with my money brought a greater understanding.

Second, as I bought more at a lower price, the average price per share went down.

This is when I really understood the power of dollar cost averaging.  It is a simple principle, yet yields marvelous results.  The idea is this:  by investing fixed amounts of money over time you will buy more shares as the price goes down and less shares as the price goes up leading to a better average price per share.  If I would have saved my money and bought stock all at one time, I would have ended up with less over all shares at a higher cost.  By spreading it out, I ended up better off.

In the end, I was able to sell the shares at a profit, even though the share price never went back up to the point I made my original purchase.


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