Dollar Cost Averaging

In both good and bad economic times benefits can be derived by making regular contributions into unit linked investments like superannuation.
If we could predict the fluctuations in the market accurately, investing would be easy and very profitable. The old adage of buy low and sell high would be simple to do rather than a dream investors aim for. However, even experienced investors are unable to accurately pinpoint when a market will go up or down. Putting a fixed amount, on a regular schedule, into your superannuation helps overcome the volatility of the market.

How it works

Investing the same amount of money at regular intervals (monthly, quarterly, half yearly), you buy more units when the unit price is low and less units when the unit price is high. Your total cost is averaged and this strategy usually results in a greater number of units than would occur if you tried to pick the market.
As an example – lets assume that you put $100 per month into an investment for 12 months. The unit price is up some months and down on others.

Month	Investment	Unit Price	Number of units bought
January	$100	$10.00	10.00
February	$100	$9.76	10.25
March	$100	$9.30	10.75
April	$100	$9.76	10.25
May	$100	$9.30	10.75
June	$100	$8.89	11.25
July	$100	$8.00	12.50
August	$100	$9.30	10.75
September	$100	$10.00	10.00
October	$100	$10.53	9.50
November	$100	$10.26	9.75
December	$100	$10.00	10.00
TOTAL	$1200	.	125.75

Results
Average Unit Price: $9.59 ($115.1/12)
Average Unit Cost: $9.54 ($1200/125.75 units)
Current Unit Price: $10.00
Current Value of Investment: $1,257.50

This compares with an investment of the total $1200 you would have purchased 120 units. The value of those units in December would be $1200.

Whilst this is a simplistic model, it is worth discussing the principles of dollar cost averaging with your financial planner during your next meeting. If you would like to arrange a meeting with a financial planner fill out our online form today.