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.
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.
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