Dollar Cost Averaging or Ringgit Cost Averaging is an investment strategy that was “immortalised” by Benjamin Graham in his book, The Intelligent Investor. It is a practice of systematically investing equal amount of money at regular intervals, regardless of the price of a stock or fund. In the long run it could reduce the impact of volatility in price and bring down the cost of investing on our portfolio. Effectively the strategy removes the effort that we need to time the market in search of buying at the best prices, which usually go wrong most of the times. It is a simple method or strategy to build wealth in the long term.
THE BENEFITS OF DOLLAR COST AVERAGING/RINGGIT COST AVERAGING
- Emotions – This is the frequently made mistake in investing. Investors often seesaw between greed for bigger profits and panic when market goes down. In such situation, investors are prone to making emotional decisions that are detrimental to their long-term investment. DCA/RCA allows investors to remove emotions from their investing decisions and instil discipline to the management of their investment.
- Long Term Plan – Dollar Cost Averaging/Ringgit Cost Averaging is like seeding or cultivating the market. By investing an equal (or small amount) at regular intervals, investors would be better at managing the volatility of the markets. It is best for investors with a long-term investing goal.
- The trap of (mis)timing the market – We can’t predict the movement of the markets. As matter of fact none of us has a formula that can tell accurately how and where the market would go. Dollar Cost Averaging/Ringgit Cost Averaging eliminates the need for this.
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(Information are sourced and adapted from www.investopedia.com and an article written by Shawn McLaughlin at https://sgroifinancial.com.)
