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Investing
Here’s a strategy that may help reduce the total price you pay for your
portfolio and ultimately builds better overall returns -whatever the market.
Dollar-cost averaging is achieved by making an equal payments at regular intervals - say monthly - over a long period of time, regardless of the unit price. Investing systematically in this way usually results in a lower average unit cost over time.
J. Paul Wilson, CFP, CLU, CH.F.C., TEP
380 Bedford Highway, Halifax, Nova Scotia, B2N 2L4
Office (902) 405-8665 Direct (902) 982-2377 Mobile (902)488-4982
Toll-free Fax (866)-436-1207 Email paul@jpw.ca
Desjardins Financial Security Investments Inc.
Branch Office
110-230 Brownlow Avenue
Dartmouth, Nova Scotia. B3B 0G5
Branch (902) 468-0814
Direct (902) 982)-2377
Fax: (902-468-7292
NOTE:
The information contained in this article is intended to provide general guidelines only. The application and impact of the law can vary widely from case to case based on the specific or unique facts involved. Accordingly, the information in this article is not intended to serve as legal, accounting or tax advice. Users are encouraged to consult with their professional advisers for advice concerning specific matters before making a decision.
Make your investment decisions wisely. Please read this carefully before investing. Commissions, trailing commissions management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently. Past performance of the funds may not be repeated.
A description of the key features of the segregated fund policy issued by the insurance company is contained in the information folder. Any amount that is allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.
In a Fluctuating Market
When prices rise, a monthly investment buys fewer units of a given fund. When prices fall, your monthly contribution buys more units.
Assuming a lump sum payment of $1,000 and regular monthly investments of $100:
Total units purchased 365
Ending unit price $ 10.00
Total value of units
at the end of the year $3,650.00
(365 units @ $10 each)
Total cost of units $2,100.00
($1,000 + 11 $100 investments)
Gain on investment $1,550.00
Average unit price paid $ 5.75
($2,100 ÷ by 365 units)
Even though the number of units you bought each month went up or down, depending on the market, the ending unit price of $10 is significantly higher than the $5.75 you paid per unit on average.
In a Rising Market
When prices rise steadily over a period of time, your monthly investment buys fewer units of a given fund.
Assuming a lump sum payment of $1,000 and regular monthly investments of $100:
Total units purchased 334
Ending unit price $ 10.00
Total value of units
at the end of the year $3,340.00
(334 units @ $10 each)
Total cost of units $2,100.00
($1,000 + 11 $100 investments)
Gain on investment $1,240.00
Average unit price paid $ 6.29
($2,100 ÷ by 334 units)
By investing a regular amount each month, you can buy more units when the price is down, making your average unit price $6.29. If you had waited until the end of this period to make your investment in one lump sum, you would have paid $10 per unit.