Is Dollar Cost Averaging A Good Idea Now?

Yves SchoofInvestments

Whilst many people have been actively buying into the share market over the last few months, many others might be waiting for that perfect time.

But what if there is no perfect time, and even if there was, it would be difficult to time.

What if there was another way that you could get started, but manage the market timing risk?

 

What is dollar-cost averaging?

Similar to a regular savings plan, dollar-cost averaging simply involves investing an amount of money at set intervals over a certain period of time, irrespective of whether market prices are up or down.

You automatically buy more shares or units when prices are lower and fewer when prices are higher. Over the total period that you keep investing, your average entry cost will potentially be lower than the prevailing market price.

Yet, the main benefit of dollar-cost averaging is not so much the price paid for the investments; rather it is the adherence to a disciplined, non-emotional approach to investing that is not distracted by current market sentiment.

It’s particularly useful to help you focus on your long-term goals with an appropriately diversified portfolio while avoiding emotionally driven decisions to buy or sell – in other words, trying to time the markets.

Incremental investing is gaining popularity, especially through online platforms that enable you to invest automatically on a regular basis, and with minimal transaction costs.

The use of dollar-cost averaging does not necessarily mean investments will succeed, nor does it protect you from falling prices.

However, there is definite value in countering the emotion normally associated with investing by adopting a systematic incremental investment approach.

Dollar-cost averaging provides a straightforward way to steadily accumulate wealth without being overly concerned by market volatility.

If you have a long-term investment horizon with the discipline and resolve to keep investing, even during the most volatile investment periods as we’ve been experiencing, it’s a strategy worth exploring.

Note: Text edited and sourced from Vanguard Australia

Yves Schoof
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Yves Schoof

Author | Specialist Adviser for Medical Specialists and Surgeons at Affluence Private Wealth
I specialise in managing and coordinating the financial affairs of medical professionals and have been recognised as one of the best financial planners in Australia. I am a Certified Financial Planner and member of the Financial Planning Association of Australia.

As I understand your time is extremely valuable and scarce, I am able to offer flexible meetings times, including outside business hours and during the weekend. I can even come and meet you somewhere convenient, or talk via videoconference on Skype.

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Please contact me on yves@affluenceprivate.com.au or call me direct on 0432 885 295. You can follow me on Twitter @YvesSchoof or connect with me on LinkedIn to receive new articles.

DISCLAIMER
Yves Schoof and Affluence Private Wealth are Authorised Representatives of Synchron, AFS Licence No. 243313. 

The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs.
Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.
Yves Schoof
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