Put the power of dollar cost averaging

        - to work for you 

Here’s a strategy that helps 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.

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.

For more information contact          

 

J. Paul Wilson, CFP, CLU, CH.F.C., TEP

2-33 Thorne Avenue, Dartmouth, Nova Scotia, B3B 2E7

Halifax/Dartmouth (902) 429-2696 ext. 225   Toll Free 1-877-429-2696 ext.225

Web site: www.jpw.ca  Email: paul@maritimewealth.com

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.