Tuesday, February 17, 2009

One-Lump-Sum Investment vs Dollar-Cost-Averaging

In this post, I will show a simple calculation to share the differences between investment through One-Lump-Sum and Dollar-Cost-Averaging. The parameter as below:
1) Total cash available for investment is RM6000
2) Initial price is RM0.25/unit
3) Assumption that the sales charge for this particular fund is 5.5%
4) Investment period is 6 months
5) No withdrawal or dividend received within this 6 months


Based on the table above, by using Dollar-Cost-Averaging method to spread the investment of RM6k over 6 months (with RM1k invested on 1st day of the month), the total unit accumulate is slightly more than One-Lump-Sum investment of RM6k. Of course there are other factor involved. If the market price keep increasing, then the total unit accumulated will be slightly less. And again, no one can time the market. So, we are trying our best not to miss the opportunity to invest when the unit price is lower.
Feel free to share your view with me. Together we learn for a better financial future. Happy Investing!

2 comments:

  1. Definitely go for Dollar-Cost method. Although the market is unpredictable, but it's advisable to invest when the time is right instead of the same amount invested every time. Most people may not notice, but it does affect the 'return' as Yan showed clearly in the spreadsheet. Well done.

    Smart investment is all we're looking for nowadays.

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  2. Thanks Ching Ya, for your tips on publishing spreadsheet on blog/website. I can share/show my spreadsheet clearly :) Just what I want it to be!

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