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Welcome to my blog and you have pointed out a keyword – “stay focus”

Thanks and welcome to my blog

Welcome to my blog.

Basically dollar-cost averaging (DCA) is a process of you investing at regular intervals, usually monthly, which allow you effectively put your investment programme on autopilot. This helps to eliminates the problem of marketing timing.
Let see why this is worth doing.

Let assume we have Mr. A, put asides RM 500 each month into unit trust. It price rises and fall in tandem with the stock market’s condition. When the unit price of his fund is low, Mr. A buys a lot more units with RM 500. Likewise, when the unit price is high, his RM 500 will buy lesser units. So, what would happen over time? As months and years pass by, it is highly likely that Mr. A buys his portfolio of units at average price that is much lower many of those that buy lump sum at a single price. Let’s assume the price of the fund from Jan to June changes as follows:-

Jan’s price @RM1.00 ;invested units=500.00 units
Feb’s price @RM0.75 ;invested units=666.67 units
March’s price @RM0.73 ;invested units=684.93 units
Apr’s price @RM1.01 ;invested units=495.05 units
May’s price @RM1.30 ;invested units=384.62 units
June’s price @RM1.05 ;invested units=476.19 units

Total invested amount=RM 3,000(RM500 X 6 months); and total units invested=3,307.46 units
So, His per unit cost equals RM 0.91 (3,307.46 units /RM3,000). The averaged cost is much lower than his first entry cost of RM 1.00.

Let’s look at another way to illustrate the power of DCA. Mr. A bought the fund at RM1 in January and now dropped to RM 0.75 in Feb and 0.73 in March. He would have lost 27% as of March if he has not opted for DCA investment method.
Since he has constantly invested in the same fund monthly, his average cost has reduced to RM 0.81, or a lost of 19% as of March instead of 27% as shown above. When the fund’s performance improved to RM1.01 in April, he has made a profit of 19% instead of a mere break-even if he had only invested once while the price was RM 1.

So, under current roller-coaster market situation, investor like Mr.A will be the big winner! Why? Because his cheaper acquisition cost will likely allow him to reap a larger profit when the share market improved.

Of course you can say, well, if I were to put in RM 1,500 one lump sum when the price was RM 0.73 won’t it be better? OF COURSE! But this require your expertise in timing the market. If you are not good at timing the market, then DCA would be the next best investment practice that you can adopt. Honestly, none of us can time the market, the market is simply too unpredictable which I suppose it is also why it creates many window opportunities for the smart investors to capitalise the bargain…

I hope the above info is helpful.