Regular saving investment is designed to reduce market risk through the systematic purchase of securities at predetermined intervals and set amounts. Instead of investing assets in a lump sum, the investor works his way into a position by slowly buying smaller amounts over a longer period of time. This spreads the cost basis out over several years, providing insulation against changes in market price. Many successful investors already practice without realizing it. Many others could save themselves a lot of time, effort and money by beginning a plan.
Case 1: V-shape pattern market
By investing using dollar cost averaging:
|
Invest date |
Price per share |
Amount |
Shares purchased |
Invest date |
Price per share |
Amount |
Shares purchased |
|
Jan-07 |
$100.00 |
$3,000 |
30.00 |
Apr-08 |
$58.80 |
$3,000 |
51.02 |
|
Feb-07 |
$99.20 |
$3,000 |
30.24 |
May-08 |
$57.90 |
$3,000 |
51.81 |
|
Mar-07 |
$90.00 |
$3,000 |
33.33 |
|
$61.60 |
$3,000 |
48.70 |
|
Apr-07 |
$85.30 |
$3,000 |
35.17 |
Jul-08 |
$65.50 |
$3,000 |
45.80 |
|
May-07 |
$87.60 |
$3,000 |
34.25 |
Aug-08 |
$68.00 |
$3,000 |
44.12 |
|
Jun-07 |
$86.60 |
$3,000 |
34.64 |
Sep-08 |
$62.50 |
$3,000 |
48.00 |
|
Jul-07 |
$81.40 |
$3,000 |
36.86 |
Oct-08 |
$66.60 |
$3,000 |
45.05 |
|
Aug-07 |
$77.30 |
$3,000 |
38.81 |
Nov-08 |
$72.40 |
$3,000 |
41.44 |
|
Sep-07 |
$78.30 |
$3,000 |
38.31 |
Dec-08 |
$71.60 |
$3,000 |
41.90 |
|
Oct-07 |
$65.60 |
$3,000 |
45.73 |
Jan-09 |
$72.80 |
$3,000 |
41.21 |
|
Nov-07 |
$67.80 |
$3,000 |
44.25 |
Feb-09 |
$75.90 |
$3,000 |
39.53 |
|
Dec-07 |
$68.00 |
$3,000 |
44.12 |
Mar-09 |
$78.00 |
$3,000 |
38.46 |
|
Jan-08 |
$59.80 |
$3,000 |
50.17 |
Apr-09 |
$81.80 |
$3,000 |
36.67 |
|
Feb-08 |
$53.20 |
$3,000 |
56.39 |
May-09 |
$78.90 |
$3,000 |
38.02 |
|
Mar-08 |
$51.30 |
$3,000 |
58.48 |
Jun-09 |
$84.60 |
$3,000 |
35.46 |
Total Investment= 30 x $3,000= $90, 000
Accumulated shares= 1257.94
Value as at Jun 09= 1257.94 x 84.60= $106,421.93
Profit and loss: ($106,421.93-$90,000.00)/ $90,000.00= +18.25%
By investing using lump sum:
Value as at Jun 09= 900 x 84.60= $76,140.00
Profit and loss: ($76,140.00-$90,000.00)/$90,000.00= -15.40%
Case 2: Down trend pattern
By investing using dollar cost averaging:
| Invest date |
Price per share |
Amount |
Shares purchased |
Invest date |
Price per share |
Amount |
Shares purchased |
|
Jan-07 |
$100.00 |
$3,000 |
30.00 |
Apr-08 |
$80.90 |
$3,000 |
37.08 |
|
Feb-07 |
$101.80 |
$3,000 |
29.47 |
May-08 |
$78.60 |
$3,000 |
38.17 |
|
Mar-07 |
$105.30 |
$3,000 |
28.49 |
|
$80.10 |
$3,000 |
37.45 |
|
Apr-07 |
$99.60 |
$3,000 |
30.12 |
Jul-08 |
$82.40 |
$3,000 |
36.41 |
|
May-07 |
$101.60 |
$3,000 |
29.53 |
Aug-08 |
$81.60 |
$3,000 |
36.76 |
|
Jun-07 |
$97.00 |
$3,000 |
30.93 |
Sep-08 |
$79.20 |
$3,000 |
37.88 |
|
Jul-07 |
$95.60 |
$3,000 |
31.38 |
Oct-08 |
$76.60 |
$3,000 |
39.16 |
|
Aug-07 |
$96.00 |
$3,000 |
31.25 |
Nov-08 |
$72.40 |
$3,000 |
41.44 |
|
Sep-07 |
$95.00 |
$3,000 |
31.58 |
Dec-08 |
$78.60 |
$3,000 |
38.17 |
|
Oct-07 |
$93.70 |
$3,000 |
32.02 |
Jan-09 |
$70.90 |
$3,000 |
42.31 |
|
Nov-07 |
$83.50 |
$3,000 |
35.93 |
Feb-09 |
$70.30 |
$3,000 |
42.67 |
|
Dec-07 |
$88.60 |
$3,000 |
33.86 |
Mar-09 |
$72.60 |
$3,000 |
41.32 |
|
Jan-08 |
$82.70 |
$3,000 |
36.28 |
Apr-09 |
$70.50 |
$3,000 |
42.55 |
|
Feb-08 |
$81.40 |
$3,000 |
36.86 |
May-09 |
$73.20 |
$3,000 |
40.98 |
|
Mar-08 |
$83.60 |
$3,000 |
35.89 |
Jun-09 |
$63.20 |
$3,000 |
47.47 |
Total Investment= 30 x $3,000= $90, 000
Accumulated shares= 1,083.41
Value as at Jun 09= 1,083.41 x 63.20= $68,471.51
Profit and loss: ($68,471.51-$90,000.00)/ $90,000.00= -23.92%
By investing using lump sum:
Value as at Jun 09= 900 x 63.20= $56,880.00
Profit and loss: ($56,880.00-$90,000.00)/$90,000.00= -36.80%
Case 3: Up trend pattern
By investing using dollar cost averaging:
|
Invest date |
Price per share |
Amount |
Shares purchased |
Invest date |
Price per share |
Amount |
Shares purchased |
|
Jan-07 |
$100.00 |
$3,000 |
30.00 |
Apr-08 |
$127.90 |
$3,000 |
23.46 |
|
Feb-07 |
$101.80 |
$3,000 |
29.47 |
May-08 |
$129.10 |
$3,000 |
23.24 |
|
Mar-07 |
$105.30 |
$3,000 |
28.49 |
|
$130.80 |
$3,000 |
22.94 |
|
Apr-07 |
$99.60 |
$3,000 |
30.12 |
Jul-08 |
$135.50 |
$3,000 |
22.14 |
|
May-07 |
$101.60 |
$3,000 |
29.53 |
Aug-08 |
$132.10 |
$3,000 |
22.71 |
|
Jun-07 |
$108.90 |
$3,000 |
27.55 |
Sep-08 |
$129.60 |
$3,000 |
23.15 |
|
Jul-07 |
$110.00 |
$3,000 |
27.27 |
Oct-08 |
$134.70 |
$3,000 |
22.27 |
|
Aug-07 |
$109.00 |
$3,000 |
27.52 |
Nov-08 |
$140.90 |
$3,000 |
21.29 |
|
Sep-07 |
$113.30 |
$3,000 |
26.48 |
Dec-08 |
$142.00 |
$3,000 |
21.13 |
|
Oct-07 |
$119.60 |
$3,000 |
25.08 |
Jan-09 |
$145.60 |
$3,000 |
20.60 |
|
Nov-07 |
$126.10 |
$3,000 |
23.79 |
Feb-09 |
$139.80 |
$3,000 |
21.46 |
|
Dec-07 |
$117.60 |
$3,000 |
25.51 |
Mar-09 |
$140.80 |
$3,000 |
21.31 |
|
Jan-08 |
$123.60 |
$3,000 |
24.27 |
Apr-09 |
$141.90 |
$3,000 |
21.14 |
|
Feb-08 |
$119.60 |
$3,000 |
25.08 |
May-09 |
$146.70 |
$3,000 |
20.45 |
|
Mar-08 |
$126.70 |
$3,000 |
23.68 |
Jun-09 |
$147.50 |
$3,000 |
20.34 |
Total Investment= 30 x $3,000= $90, 000
Accumulated shares= 731.47
Value as at Jun 09= 731.47 x 147.50= $107,891.82
Profit and loss: ($107,891.82-$90,000.00)/ $90,000.00= +19.87%
By investing using lump sum:
Value as at Jun 09= 900 x 147.50= $132,750.00
To conclude, dollar cost averaging effect would be great when compare with a lump sum investment. Beside, it also reduce the loss when comparing with a lump sum investment in a down trend market.
If you have interest in regular saving investment, please get in touch with one of our professional Investment Consultants and Financial Planners for a free consultation.
|
