Dollar Cost Averaging Investment – The Best Strategy

Part II

In Part I, we said that during this volatile market, investing unit trust via Dollar Cost Averaging (DCA) would be the best strategy because no matter what type of market say rising market, falling market or fluctuating market, at the end of the day investors would get more shares or units.

Now we use the table of "Fluctuating Market" to explain how investors would get more units in the fluctuating market below:

As the above table shows that the "Unit Price" fluctuates from $10 to $10, though Mr. A & Mr. B both had spent $30,000 to invest unit trust at 5 intervals, Mr. A insisted to buy 1,000 units every time whereas Mr. B prefers to invest fixed amount of $6,000 every time. At the end of 5 months, Mr. B got 7,200 units which is 2,200 units more than Mr. A's 5,000 units.

At the same time, Mr. B's averaging cost (RM4.17) of his fund is also cheaper than that of Mr. A (RM6.00). This has clearly shown that via dollar cost averaging method not only one can buy more units but also reducing the capital of investment.

In Malaysia, one of the ways to apply DCA is to use DDI (Direct Debit Instruction) method; i.e. to instruct the bank to auto debit a fixed amount from one's bank account into his investment (fund) at fixed date. This method will ensure one will certainly invest every month and increase his fund's units unless there's not enough money in his bank a/c at that time.

Three banks are recommended to provide this DDI service; namely, Public Bank Bhd., BSN and Maybank. The first 2 banks don't charge service fee upon this type of DDI whereas Maybank charges RM1 for each auto debit. However, Maybank's DDI form can be used to auto debit  4 funds in one form.

By Vincent Chai from www.ecatcity.com

Your Feedback or Comment