Dollar Cost Averaging
Many people see volatility as a curse, but it doesn’t have to be. Instead of working against you, volatility may, in fact, work for you if you follow a disciplined, regular savings plan under which you invest a fixed sum of money at regular intervals.
The magic of “dollar cost averaging”
Assume you are contributing HK$1,000 regularly for investment. When markets rally, your HK$1,000 contribution will buy fewer units. On the other hand, the same amount can buy more units when the market price drops. In the long term, this investment strategy will minimize the impact from short term price movements and will result in a lower average cost than the average unit price, no matter which direction the markets move.
Lump Sum Investment vs. Regular Investment Plan
Market turns tend to be swift, sharp and unexpected. We repeatedly hear stories about investors suffering big losses by “following the herd” - buying at high levels and selling at depressed levels. Indeed, staying invested is the best way to maximize potential returns. If you have a good strategy, a disciplined approach and the patience to keep your money invested for long enough, it’s never the wrong time to invest.
Remember: It is never too late to start a regular savings plan. The sooner you start, the longer you stay invested, the more you can take advantage of the magical power of “dollar cost averaging!”