Here is the definition of Dollar Cost Averaging
“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.”
But it has been criticized by some gurus as more of a marketing gimmick than a strategy….
What ever it is, I would suggest to investors that the current trend of unit price getting lower and lower, take this opportunities to average your unit price. How its work ?
You have bought a fund at peak price on Dec 07, you invested your RM10,000, you would have purchased 10 000 shares at RM1 each. When the current stock price at the lowest price say RM0.50, you added more 10000 unit by bought RM 5000. Then now, your cost per unit would reduce from RM1 each to RM0.75. Later, when the market start bouncing, you can maximize the profit.
unit you hold = 20 000, capital cost = RM 15 000, cost per unit = (1/20000)xRM15000) = RM0.75