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Dollar Cost Averaging - Reduce Your Risk!
When investing, more importantly than picking the right times for buying/selling, research show's us that your investment returns are more likely to increase with picking the right investments and allowing them to perform with time.
Time in the market is more important than timing the market.
We can do much better with our investing if we use a strategy called dollar cost averaging instead of trying to pick the peaks and pits.
Invest regularly over longer periods of time.
Dollar cost averaging is where you continue investing a regular amount over longer periods at regular intervals regardless of what the market is doing.
This will average the cost of your investment.
It eliminates market emotion and reduces the impacts of market peaks and pits; When prices drop and many people pull out of a market, you will continue investing the same amount and acquire more units. And when prices are high, and many rush in, you will be buying fewer units.
Example - Pamela's Story.
Pamela wants to invest $1000 in a managed Australian equities fund where unit price has been fluctuating.
If she invests the $1,000 immediately, she will be purchasing units at $8 each so she would be getting 125 units. However, if she invests $200 a year over five years in a fluctuating market, she will receive 141.51 units (at an average price of $7.07 per unit) over the period. By regularly investing during market fluctuations, Pamela has bought more units and the average cost of her units has dropped from $8.00 to $7.06!
What you need to know
This advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider contacting us for personal advice, we will be happy to help!
