Dollar Cost Average

Dollar Cost Average is the purchasing of a fixed dollar amount of a particular investment or fund on a regular basis, regardless of the fund price.

You have to buy an initial amount of around $1,000; varies in different countries and depending on the fund house you are investing in. After the initial investment, you can then decide to put a certain amount into the fund, minimum usually is around $100 per month. The amount you invest monthly will definitely depend on your personal affordability.

You are allowed to do this monthly payment by way of bank transfer which keeps the task of monthly investing very convenience.

Dollar Cost Average means that your money is going into a fund at a set date monthly or weekly and you are investing at both the high points and the low points. Therefore, the share price or NAV (net asset value) you invest at averages out. Theoretically, you are investing equally when stock or fund is up as when it is down. This is in opposed to “Value Averaging”

Naturally, you hope the stock or fund will keep going up, but either way you continue to put in the same amount of money with the theory that despite the ups and downs, you are headed for a long-term positive gain. At a higher price your $100 will buy fewer shares, and at a lover price then your $100 will buy more shares – depending on the NAV of the fund you are purchasing.

 

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