DOLLAR COST AVERAGING

It is a well known fact that putting your money into a savings vehicle at the beginning of the year is more fruitful than at the end. Likewise it is better to accumulate your savings monthly in advance than annually in arrears. There is one additional advantage to systematically monthly over annually. It is called Dollar Cost Averaging.

Market values are constantly changing, one day they are up, another day they are down.  The chart illustrates the point for a $12,000 investment one made on January 1 and the other spread over four quarters of $3,000 each. the investment is made into a segregated fund.

Date	Unit Value	Units	FMV
A) January 1	$10.00	1,200	$12,000
B)    Jan 1	$10.00	300	$3,000
B)  April 1	$8.00	375	$3,000
B)   July 1	$9.00	333.33	$3,000
B)   Oct 1	$12.00	250	$3,000
A)   Dec 31	$11.50	1200	$13,800 (15%)
B)   Dec 31	$11.50	1258.33	$14,471(20.6%)

As you can see by spreading the investment over several months the growth is enhanced.

 

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