What is Dollar Cost Averaging?

Dollar Cost Averaging is an effective investment strategy to help investors to average out the cost of units over a whole investment period which may mitigate the effect of short-term market fluctuation; and the risk of wrong investment timing.

Through Dollar Cost Averaging strategy, investors have to invest a fixed amount of money at regular intervals, regardless of whether the market goes up or down. Investors could buy more units when the price of the asset is low and fewer units when the price of the asset is high with the same amount of money.

Illustrative example
Over the past few years, the financial markets have become much more volatile amid the rapid changes of global economies. In times of uncertainty, investors may feel puzzled about how to time the market so as to make the best investment. The following example shows the benefits of using “Dollar Cost Averaging”. Investor A has been using Dollar Cost Averaging (regular savings) method to invest in Hang Seng Index (“HSI”) for a 36 consecutive months since July 2008; whereas Investor B applied lump sum investing strategy to invest in the same index at the end of July 2008 with the same total amount of money. The result showed that the investment return generated through Dollar Cost Averaging strategy outperformed that of lump sum investment strategy by 13.7%!

In addition to the Hong Kong equity market, the table below shows that Dollar Cost Averaging is also more effective when applying in other markets over the same period of time.

Market

Index

Return of regular investing

Return of lump sum investing

World Equity

MSCI World Index

14.7%

 0.9%

US Equity

S&P 500

22.8%

9.0%

Emerging Markets Equity

MSCI Emerging Market Index

23.4%

 17.9%

Commodity

Reuters/Jefferies CRB Index

20.3%

 -17.3%

Source: FE & Standard Life. Data as of July 2011

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Standard Life offers you flexible investment solutions to help you achieve various long-term goals. With our investment-linked insurance plans, you can regularly invest in around 300 investment choices which are linked to the underlying funds with exposure to different asset classes and regions, helping you to capture market opportunities and diversify risk in an effective manner.

 

 

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Disclaimer: This document is intended to be distributed in Hong Kong only. The above information is for reference only and should not be relied on as advice for making any investment decisions. You should seek advice from your independent financial adviser if you have any doubt. Investment involves risks. Past performance is not indicative of future performance. Please refer to the Principal Brochures, Fund Fact Sheets and Offering Documents of the underlying funds for further information and its relevant risk factors.