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What is Dollar Cost Averaging
Friday 07 August 2020
Research / Market
POWER OF THE COST-AVERAGING EFFECT
Market timing is a costly exercise.
Dollar Cost Averaging investing strategy mitigates market timing risk by smoothing fluctuating prices. By investing small sums regularly, you buy more units when prices fall, and fewer units when they rise. This is the cost-averaging effect.
TIME IN THE MARKET VS TIMING THE MARKET
Reduce risks of exposure to market fluctuations & emotions
Fear of an ill-timed investment can lead to hasty decisions. Investing the same amount regularly regardless of market conditions allows investors to be less emotionally affected by market volatility and avoid making rash investment decisions.
Potentially lower cost of investment
With Dollar Cost Averaging, investors buy more units when prices are low and fewer units when prices are high.
Over time, the average cost of your investment could potentially be lower, compared to a one-time, lump sum investment
Stay invested, smooth out near-term bumps
Empirical evidence has shown “Time in the market is more important than timing the market.” In times of market volatility, it is more important to stay invested in the long run and manage risk than maximize returns.
Peace of mind with a predetermined plan
Dollar Cost Averaging is a simple plan that invests a fixed sum of money regularly into the same investment over a period of time, regardless of market conditions.
Dollar Cost Averaging Video
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