Buying in thirds is a strategy to begin an investment position. Instead of purchasing the entire desired allocation to a stock at once, an investor will split their investment into three roughly equal purchases. This approach helps investors avoid a situation where they buy a stock, and it immediately declines in price.
What does buying in thirds mean?
Investors can approach buying stock in several ways. They can purchase their entire allocation in one trade or slowly build a position through dollar-cost averaging. Buying in thirds is another approach to starting a new position.
Buying in thirds means an investor splits their desired stock allocation into three separate and roughly equal purchases. They make those subsequent investments in the future, usually at a set time, like over a three-week period.
How to buy in thirds
Buying in thirds is a straightforward approach. An investor needs to determine their desired allocation to a position and the period of time they plan to complete their trade.
For example, an investor wants to allocate $1,000 to a new position, buying a one-third allocation every week for three weeks. They invest the first third ($333.33) right away, invest the next third ($333.33) a week later, and buy their final third ($333.33) the week after that.
They will end up with the same desired allocation in a stock ($1,000). However, they could obtain a better overall price if the shares declined during the purchase timeframe.
Why do investors buy in thirds?
Stocks can be volatile. That makes it difficult for investors to time an investment. They could buy a stock, which might decline sharply the next day on unsettling economic news or reports that a competitor has developed a better product.
Buying in thirds enables investors to ease into a position instead of buying an entire allocation all at once. It gives them the confidence to start a new position in a stock without worrying about trying to time the purchase.
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