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DOLLAR COST AVERAGING
Dollar cost averaging - slow and steady wins the race
See the impact of Alice’s lump sum investment in super versus Bob’s regular contributions after one year.
Back in January 2008 the markets had fallen. It looked like a good time to buy in at a cheap price, so Alice decided to put $12,000 into a balanced fund. Bob however, was concerned that the markets could fall further, but wanted to be in a position where he could benefit from a market recovery. He decided to invest $1,000 a month in the same fund for one year.
Over this time the markets fell further, so both Alice and Bob saw a drop in the value of their portfolio. As unit prices dropped, Bob bought more units each time he contributed. Alice’s investment was $9,160.36 at the end of December and Bob’s was worth $10,114.48. Because Bob purchased more units in total for the same amount of money, his portfolio will increase more in value as the market recovers.
