Taking away the emotion of investing - Understanding Dollar Cost Averaging
In simple terms, Dollar Cost Averaging is the practice of using regular deposits to help smooth out stock market investment volatility. The key point about dollar cost averaging is to invest on a regular basis. In a fluctuating market, cost averaging can allow you to benefit from buying more investment units when prices are lower.
The graph below shows the advantages of saving a regular fixed sum in a volatile market over the short to medium term. This comparison shows the value of two-unit holdings over a 10-year investment term.
At first glance, Situation ‘A’ appears to provide better fund performance over Situation ‘B’.
However, on closer inspection the benefits of unit price fluctuation become clear. Dowload the free guide to find out more.
By investing a consistent amount at regular intervals, you can gradually ‘drip-feed’ into the market regardless of the price on any given day.