Tag Archives: dollar cost averaging

Dollar Cost Averaging vs Lump Sum Investment

Dollar cost averaging is a popular method for long term investment either in stock, unit trust and etc. Through this technique, you need to make monthly installments at a certain amount.

lumsuminvestment

For example, let say you have RM12,000 to invest in unit trust and you are not using dollar cost averaging, then you will simply invest the entire amount at one time and let it stay there for 1 year and gain profits after that.

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On the other hands, if you are using dollar cost averaging, then your amount RM12,000 will be break down into 12 months(which equivalent to 1 year). So, you have committed to invest RM1000 per month:

Why dollar cost averaging will benefits us? This is because the amount that you invested every month will be fixed usually but the fund price will be varied which either high or low; thus you will be purchasing more funds if the price is low and less amount of fund if the fund price is high.

I have created the calculation of dollar cost averaging method using an Excel spreadsheet. Click it here.

Different Between Dollar Cost Averaging and Lump Sum Investment

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How Dollar Cost Averaging Works?

Dollar Cost Averaging is a simple technique that you just need to invest fixed amount of money periodically. It could be monthly, half yearly, yearly and etc. You can apply this on stock or unit trust investment. It will benefit you if:

Buy MORE units investment at LOWER prices

Most of the time, it will reduce your risk during market downtime. As long as the market goes up again in the future, then you will earn more. But of course if the market never goes up, you will keep losing and that’s the whole point the dollar cost averaging is for long term investment strategy which you believe the market will go up in long run.

dollar cost averaging

It is not 100% guaranteed that dollar cost averaging can earn you some profits. There might have certain risk especially if you use it wrongly on the wrong stock/fund. On the other hand, if you use correctly, then it’ll be a great strategy for long term return.

Dollar Cost Averaging Example

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