Dollar Cost Average

Sharing a thought...

What is Dollar Cost Average (DCA)?

It's a benefit whereby investors who do regular fix amount of investment will enjoy. Very suitable in a market that is uncertain/volatile. The key word is regular investment and fix amount.

Let's say an investor invests $1,000-00 regularly in today's equity market scenario, whereby the price is going downhill (assuming no service charge incur).

To read the data below, pls follow its header's colour with the data below (sorry, cud not prepare a proper table in this page, so has to be creative here) ;)

Mkt Prc Units Ttl Units Total DCA Investment
Sen/unit Bought Collected Cost (Total Cost/Total Units) Value
------------ ----------------- ------- --------- -----------
0.25 4,000 4,000 1,000 0.25 $,1000-00
0.22 4,545 8,545 2,000 0.234 $1,999.53
0.21 4,761 13,306 3,000 0.225 $2,993.85
0.19 5,263 18,569 4,000 0.215 $3,992.34
0.20 5,000 23,569 5,000 0.212 $4,996.63
0.17 5,882 29,451 6,000 0.204 $6,008.00 (began to make profit)
0.18 5,556 35,007 7,000 0.200 $7,001.40
0.16 6,250 41,257 8,000 0.194 $8,003.86
0.17 5,882 47,139 9,000 0.191 $9,003.55
0.18 5,556 52,695 10,000 0.190 $10,012.05
0.20 5,000 57,695 11,000 0.191 $11,019.75
0.21 4,761 62,457 12,000 0.192 $11,991.74
0.23 4,348 66,805 13,000 0.195 $13,026.98
0.25 4,000 70,805 14,000 0.198 $14,019.39
0.26 3,846 74,651 15,000 0.201 $15,004.85

It's an investor's objective to BUY LOW and SELL HIGH (that's how profits are being made). In mutual fund, another objective an investor has is to ACCUMMULATE UNITS.

Dollar Cost Average is Total Cost divide with Total Units. It represents the ACTUAL COST of each unit on average basis of what the investor have on hand (total units).

Look at the first purchase of $1,000 at 25sen, total units was 4,000. Therefore cost of each unit is 25sen.

As the price goes down (25sen to 22sen), with the same investment amount ($1,000), the number of units the investor is able to buy increases (extra 545 units). Take note of the DCA value which also reduces (25sen to 234sen). This is made possible as the cost of each unit at the current low price (22sen) helps to reduce the cost of other units on hand (4,000 units originally at 25sen/unit ) thru additional units.

For an investor who decides to practice one time off investment ie to invest $1,000-00 only at 25sen, the investor would have to depend on the fund's price to increase above 25sen in order to make any profit or, to wait for any distribution/dividen to be declared in order to increase the number of units owned. It may take awhile in the current market condition. Furthermore, the dividen earned may not be significant as the principal is low ($1,000 only or 4,000 units). "Not enough power leh!"

By practising regular investment, investor is making sure his money works hard for him as he amass greater number of units at lower cost thus enable him to make profit faster and greater once the market improves as shown in green.

Investor is able to breakeven at 17sen compared to those who invest as a one time off at 25sen. Making profit even when the market price is low?! Yup! Makes sense to invest regularly right? Imagine when "free" additional units are given during distribution or as dividen. The DCA would be lowered further as no additinal cost incurred for the extra units! That is your bonus! Up goes your profit! :)

Invest for the future especially for your retirement as during our golden years our income stops but we still incur expenses in terms of food, lodging, holiday, higher medical cost, etc.

In addition, with the current equity market which is so.......... cheap and with higher......... inflation rate; this method of investment is one of the best way to ensure that our hard earned money's value is being protected otherwise inflation is quietly draining our money's purchasing power.........

Did you noticed you have to fork out extra money to get the same item? That is inflation my friend!

Parables of the Pipeline

Sharing a thought...

http://www.pipelineparable.com/d.cgi/1000/movie.htm

A story to share with you on creating passive income. Btw, if you have any questions, please contact me directly. Any details that you may leave on the given link will go some where else as it's not mine but I find the story to be very useful.

Malaysia Mega Sales is Back

Sharing a thought...

I was in town yesterday and noted that the Mega Sales is back from 5 July - 1 Sept 2008!

Lots of discount were in the offering from 10% - 70%! As it was a working hour day, the crowd was .....ok. I used to remember many years ago whenever there's a sales, the traffic would be bad and the queue to the changing room was long......! I've even heard of people using their annual leaves to take advantage of the huge discount. Is it the same now?

People are willing to queue either in the changing room or at the cashier to take advantage of the huge discounts being offered. Or be in the tight crowd, jostling in their attempt to look for items on sales. Their purchases could be huge and some of the items bought could either be used immediately, kept for future use, to give away or a just-in-case purchase.

This scenario is somehow missing whenever there's huge sales in the equity market. Currently it is also having Mega Sales but investors are dumping their shares (making losses) and prefer to be on the sideline, watching for any signs of recovery. Buy when prices going upwards?

Many investors that I've met bemoaned that they are making losses but in actual fact they are currently facing paper loss and not real loss unless they have sold off their shares/funds. It is funny, as the same is true when the equity market was good. Investors were pleased when the equity market was doing well and they assumed that they were making money and were ever more than willing to invest more even when the price was high! In actual fact, no real profit is being made unless the investors sell off their investment and pocketed their money! It is just a paper profit if nothing is being done!

The two situations are similar but somehow they have portrayed human's love for immediate gratfication through spending and lacks patience and the wisdom to take the necessary risk to await for greater profit.

If investors were to adopt the same attitude when they shop to how they invest, I am sure they would note that the current equity market is their goldmine.

With long term strategy in mind, wise investors would right now select quality low priced shares and keep them. For those who are unsure which shares to collect/buy, appoint a reputable mutual fund company to manage your investments. Let the fund managers do the shopping for you.

As all of us are unsure for how long the market will be this cheap or getting cheaper, the only practical strategy is to pick the shares / buy the funds in a gradual manner (bits by bits) in order to take advantage of the dollar cost average benefit in the event the prices continue to head south. Furthermore, based on history, anything that goes down will eventually goes up. Therefore, for long term investor, there is never a better time but now to invest when prices are heading south whilst waiting for the market to correct itself, which it normally does.

So what are you waiting for, jom, shopping!