Dollar Cost Averaging

An example of what dollar cost averaging can achieve.
With dollar cost averaging, you don't have to worry about where share prices or interest rates are headed. You simply invest a set amount of money on a regular basis over a long period of time.

Sound easy? You're absolutely right. Dollar cost averaging is a disciplined investment technique that can help turn the odds in your favour. The idea is that you buy less when the market is up, and more when it is down - automatically.

Let's look at an example which is fairly exaggerated, but illustrates how it works. Say you put $100 per month into a managed investment that initially had a unit price of $10. Over the next few months, the market falls (causing the unit price to drop) before recovering to its original value.

Month---Investment---Unit Price---Units Purchased
1-----------$100----------- $10--------------10.0
2-----------$100----------- $8---------------12.5
3-----------$100----------- $5---------------20.0
4-----------$100----------- $8---------------12.5
5-----------$100----------- $10--------------10.0
Total:------$500-----------$10-total units:65.0

At the end of the 5 months you have 65 units each worth $10, so you have $650. You have invested $500, so your profit is $150 even though the unit price is the same as when you first invested.

Of course, dollar cost averaging does not guarantee a profit. But with a sensible and long-term investment approach, dollar cost averaging can smooth out the market's ups and downs and reduce the risk of investing in volatile markets.

So when is the best time to invest? This month, next month…every month.