I am going to make this so children can understand Dollar Cost Averaging

Since I made the statement of I am going to make this so children can understand it I need to Qualify just a bit I teach this to Children 14 years old and above. I usually have a diagram of a bucket to demonstrate putting the money in, so here goes. We will be doing this for a 6 month period of time.

Dollar cost averaging done easy, let’s say you have a favorite soda pop and you will spend $100.00 a month to buy stock in the soda company. The soda stock is selling for $10.00 a share and you have $100.00 to buy the stocks how many shares can you buy. That’s right 10 shares the 1st month.

The2nd month the stock is selling for $5.00 a share how many shares can you buy that’s right 20 shares.

 The 3rd month the stock is selling for $1.00 a share how many shares can you buy that’s right 100 shares.

The 4th month the stock is still selling for $1.00 a share and you  buy another 100 shares.

The 5th month the stock goes back to $5.00 a share and you buy 20 more shares.

The 6th month the stock goes back to $10.00 a share and you buy 10 shares.

Over the six months you have spent $600.00 on soda stock and you have bought;

10 shares

20 shares

100 shares

100 shares

20 shares

10 shares

Total amount of shares is 260

Now that you have 260 shares and they are worth $10.00 a share you now have $2600.00 worth of stock.

You see when you go from $10.00 to $1.00 it is a 90% loss but when you go from $1.00 to $10.00 it is a 1000% gain.

Now hopefully I have explained Dollar cost Averaging so children can understand it.

Please help me with your comments to make sure I did a good job. Thanks

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15 Responses to “Dollar Cost Averaging”

  1. Peggy Larson says:

    I think that was a clear explanation. The only thing I would add is to say “now it’s the sixth month and we know shares are worth $10 so you now have $2600″ or something to that effect because it took me a second to figure out how you came up with $10 being the worth at that time.

    Kids are gonna love you! Parents too!

    Peggy Larson
    Quilting – Colors and Fun!

  2. That was surprisingly easy so job well done! This is such a great idea in order to teach kids the meaning of money and cost average. I actually think my 8 year old might get it so I know the teens you have worked with have benefited from your expertise.

    Jennifer Battaglino
    The Harwood Group – Tinnitus, Chronic Illness, Fears, and Anxiety

  3. Debt stacking and dollar cost averaging – two powerful investing techniques that will serve children and adults well.

    Steve Chambers
    Body Language Expert

  4. bryan says:

    That is so clear my 12 year old can understand it. Great way to show how doing something small can help your money grow.

  5. This also shows the value of patience a bit too. At one point, the stock is only worth $1. That means the previously bought stock lost value, which is pretty depressing. But if you hold out, it will eventually rise again.

    Michelle
    Fun and Free Activities

  6. Mark says:

    I agree with Michelle, it also shows the importance of long-term thinking vs instant gratification. I also like how you tie it to something they value and understand, soda.

    Mark
    Direct Selling Advice, Leveraging Relationships for Long-term Profit

  7. Shane says:

    Is this really for adults under the guise of being for children so we don’t feel dumb?

    Shane
    Hypnosis – Change Your Thoughts and Change Your Life -.

  8. Rob Northrup says:

    This is also a good way to buy into precious metals like gold and silver. The price fluctuates over time so you don’t have to worry about putting everything in at the top. If you have a lump sum of money to invest, you just need to figure out how long and slow to make your entry into the market…

    Seize the Day,
    Rob

    Simple Family Survival Tips For Disasters and Emergencies

  9. Great explanation! I also agree with the other commenters about this also helping children and adults to see the value of delayed gratification and patience.

    (By the way, have you ever thought of a post on “time stacking”? Children and adults today have lots of commitments on their time – and as the saying goes: Time is money – but time is so much more than money – time enables us to “be” and “live” on this earth – but how can we make the most of this valuable commidity: time? Can we “Time-stack”?)

    Eileen
    ESL: A Business?
    7 Ways To Use Twitter For Marketing

  10. It does take patience and nerves of steel to do this, especially when you bought high and now the price is low. You already see the loss, and you are afraid of it going down further.

    Tim Van Milligan, helping you Make Money Online, God’s Way!

  11. This is a geat little explanation of dollar cost averaging.

    In response to Tim’s post, that’s why you want to fully understand the business of the stocks you buy especially if you’re in it for the long haul & not just a quick hit.

    For instance, when Coca-Cola stock drops low, Warren Buffet steps in & buys a lot more shares because he has no intention of selling his stock anytime soon. He’s going to hold on to his stock & add to it every chance he gets because he’s a long term investor.

    Michael
    The Success Secrets

  12. With dollar cost averaging so easy to understand now, I am going to have to invest some money in the soda market.
    Scott Sylvan Bell
    Now go implement!

  13. I must be a child because I wouldn’t have figured that out until you explained it to me just like that! It seems so simple now.

    Lisa McLellan
    Babysitting Services, Nanny Services, and Nanny agencies

  14. Hi Dale,

    I remember Dollar Cost Averaging being explained to me and yes, being very visual, it helped me to grasp it to see a diagram, a table to SHOW me. You text description is very clear and helpful.

    Happy Dating and Relationships,

    April Braswell
    Cyberdating Expert and Online Dating Coach

  15. michael says:

    i was confused at first but I did the math myself – added up each shares you bought each month and then the final worth is how many shares you had at the last price.

    so is it correct that dollar cost avergaing changes as the stock price changes?

    Michael
    http://datingguruhq.com