If timing the market is not your thing and you’re looking for a mid/long term investment strategy that’s easy to maintain and can reduce your worry from market risks, dollar-cost averaging could be for you! But what’s the secret behind the dollar-cost averaging formula and why is it a good option for savers?
- Dollar-cost averaging is a low maintenance way to build your wealth over time by spreading your investment purchases over the number of days in the set period and in equal amounts.
- The aim of dollar-cost averaging is to minimise the risk of suffering big losses due to market volatility.
- One key benefit is that it reduces the emotional stress that comes from investing.
What is Dollar-cost averaging?
Dollar-cost averaging is a savings method where you set aside the same amount of money into an asset over a period of time at regular intervals such as every week/ month / quarter.
Typically, you make a payment into your investment on the same day each month, it then takes the money you invested and slowly buys smaller amounts of that asset over the number of days in that set time period.
So instead of making one lump sum purchase into an investment, dollar-cost averaging spreads your investment purchases over a longer period of time.
It is a strategy that is commonly used in assets where price fluctuations happen more regularly, such as stocks, index funds, mutual funds, ETFs and even precious metals investments.
What are the benefits?
Dollar-cost averaging helps minimise the emotional stress that comes with investing. By spreading your investments over time, it lessens the impact of market volatility and reduces the risk of suffering big losses from investing an entire lump sum.
It’s a low maintenance way to save. It saves you time and removes the hassle of market monitoring, analysing and timing the market for the best price.
It also lets you build your wealth over time which can help ride out any market downturns and in the long run.
Dollar-cost averaging can help master a regular savings habit. Regardless of whether the markets are up or down, you stay committed to putting the same amount of money into your savings. And when it comes to saving and investing, as Warren Buffet said “always invest for the long term.”
How is it calculated?
Let’s say you just got paid 💵 and you want to save RM250 each month in gold, you can either:
- Save once in one lump sum and forget about it, or
- Set up a dollar-cost averaging plan by making a payment on the same day each month and we’ll help buy your gold for you on a daily basis in smaller RM amounts. Heard of our SmartSaver plan?
Here’s a comparison on how lump sum investment is made and how the dollar-cost averaging formula works:
The total amount saved is RM250, but the difference can be seen in the total amount of gold grams bought. In scenario A’s lump-sum saving, 1.03 grams of gold was bought versus 1.05g in scenario B’s dollar-cost averaging method, that’s 0.2 gram more with dollar-cost averaging. What’s more, the average gold price per gram was also cheaper in the long run with dollar-cost averaging.
Dollar-cost Averaging vs. Lump Sum Investing
|Dollar-cost Averaging||Lump Sum Investing|
Each investment has its own advantages and disadvantages, if you are easily affected by your emotions when it comes to your finances, dollar-cost averaging might be a better choice for you. But if you like the thrill of the price hunt of buying low and selling high, lump sum investing might be more suitable for you.
Does HelloGold offer Dollar/RM-cost Averaging?
Yes we do! If you are looking for a convenient and low maintenance way to save in gold, our SmartSaver plan would be a great fit for you. Not only will you be able to diversify your portfolio in this safe haven asset with ease, you can set a regular savings amount that suits your lifestyle and your current affordability levels.
The SmartSaver plan is a goal-focused 12-month automated savings plan that helps you buy gold for you at the lowest prices every working day. Want to find out the formula You can also check out the SmartSaver formula in our FAQ.
All you have to do is choose your goal, set your monthly savings amount and contribute each month. You can also set and forget with Direct Debit and just sit back while you grow your savings for your better future!
Learn how to get started in just a few taps!