Sticking with a disciplined contributions strategy is compelling, even when markets are moving against you.We live in turbulent times but – while it’s easier said than done – you shouldn’t throw logic out the window when investment markets are volatile.benefits of dollar cost averaging
It can reduce the risk of investing in volatile times and helps avoid the pitfalls of attempting to time entry into markets. Dollar cost averaging overcomes investor paralysis by giving you the opportunity to build exposure to growth assets in a disciplined way. Wilma’s initial $20,000 investment acquires 20,000 units. The second $20,000 buys 28,571 units at 70¢. Her third $20,000 gets 25,000 units at 80¢; fourth 22,222 units at 90¢; and her final $20,000 gets her 18,182 units at $1.10.
The good news is that dollar cost averaging is how most wage earners invest in super via their employer’s regular compulsory superannuation guarantee contributions. Assuming they all have a 70 per cent exposure to equities in their super, the market must drop 28 per cent for Luca to be worst off, while it’s 40 per cent for Jen, and 54 per cent for Sam – and that hasn’t happened.
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