Dollar (or "Ringgit") Cost Averaging strategy

Once, the market keeps going down, another time an upward trend; then it goes down again.
In an uncertainty market like current situation, I definitely agree that the best option is to go for "Dollar Cost Averaging" in investments.

According to Wikipedia,
Dollar Cost Averaging is a timing stratagy of investing equal dollar amounts regularly and periodically over specific time periods (such as $100 monthly) in a particular investment or portfolio. The point of this is to lower the total average cost per share of the investment, giving the investor a lower overall cost for the shares purchased over time.

Let's talk about how it works in Unit Trusts (Mutual Fund) investments.

In Unit Trusts, the key is to LOWER the AVERAGE COST per unit of a fund.
That is also 1 of the secrets to investing successfully. Why? Because, nobody can TIME the market! Remember i wrote in my previous post, that "timing" and "choosing the right fund" is 2 most important element? Well, this dollar cost averaging strategy definitely can LOWER the risk of "timing" the market. Because we can never always predict accurately whether the market will rise or decline. I find this strategy very useful to be a successful investor.

This strategy is the opposite of "lump sum" investment. Let's say you want to put aside RM5,000 to invest. By using dollar cost averaging, you may invest RM500 per time (eg per month), investing for a total of 10 times to reach RM5,000; rather than investing a one lump sum of RM5,000. UNLESS you are 100% sure that the market is at its LOWEST point, then please invest as much as you can, you'll 100% earn unlimited profit! But the problem is, how can you be 100% sure as we are not God?

Let me give you a simple illustration. Let's say you work in a retail shop selling pens. Supplier A offers you RM0.40 per pen. You buy it - cos you do not know whether the price will increase or decrease in future. You handed RM40 to Supplier A, giving you a total of 100 pens. However, if Supplier B comes into the picture, offering you only RM0.20 per pen, of course you buy from Supplier B now. Thus, the same RM40 you handed over to Supplier B, B gives you a total of 200 pens! Now you have 300 pens altogether, costing you RM80; meaning, the cost per pen = RM80/300 = RM0.267.

Now you may think why don't you buy MORE from Supplier B. Yes sure you can. So you buy RM80 instead of only RM40 from B. Now B gives you 400 pens. So, plus the pens from Supplier A of 100 pens, now your total pens = 500 pens. Cost per 500 pens (costing RM40 from Supplier A and RM80 from Supplier B) is RM120/500 pens = RM0.24 per pen! Now this is the whole idea of Dollar Cost Averaging.

Combining the Power of Dollar Cost Averaging with the Diversification of a Mutual Fund - Any better investment tool ?

Worthwhile INSURANCE package – & some INVESTMENT info to share =)

Have you bought any insurance package? If you are hunting for one or dissatisfied with the one you are currently holding, I am passionate to share with you about this best insurance package that I’ve come across so far.

MUTUAL LIFE PLUS 2 – This insurance package, underwritten by Great Eastern, is offered exclusively for Public Mutual (unit trust) investors.

This attractive insurance package is offered as below:

If you are a bit familiar with insurance packages, you must sure have noticed that no other insurance package offers such a wide coverage like this with such low annual premium to pay.

To qualify for the annual premium of RM475, you have to invest in Public Mutual up to RM4750; For the annual premium of RM 950, you have to invest up to RM9500; and so on (10% of your investment amount). These RM4750 and RM9500 that I mentioned is the ACCUMULATED investment that you make, which means; for instance, you invested RM1000 in Public Mutual Fund (any funds can qualify) in January, RM2000 in February, and RM1750 in May – Your investment totaled RM4750 that qualifies you for the RM475 annual premium insurance. Of course, if your total (accumulated) investment is higher, you are qualified to buy higher premium insurance that insured you a higher sum insured.

My grandfather told me that we are actually paying RM4750 + RM475 instead of just RM475 per year. If you happen to think about it that way too, please let me finish my sentence – After you bought RM475 insurance package, when your investment earned you money, you can sell RM3750 of your investment (plus capital gains you made), as long as you leave RM1000 of your total investments in Public Mutual. If you do not really get what I’m trying to explain, you may not have known the many benefits of investing in unit trusts; I strongly urge you to continue reading this [I’m not any better than you, just that I have the privilege of studying Finance in my Degree and I’m now a part time Unit Trust Consultant myself]

I can say that the key to Mutual Fund (unit trust) investment lies in the word “DIVERSIFICATION”. As economists like to quote: Don’t put all eggs in one basket. We do not want to lose all our eggs (ie. money) when we accidentally dropped that one basket (ie. the place we save/invest our money). To put it simply, diversification minimizes our risk of losing our hard-earned money. What does this fact of diversification got to do with investing in Unit Trust? Well, the maximum percentage of a Mutual Fund investing in any shares of one company is only 10%. A Fund may invest from 40% to 90% in equity (share market), depending on an investor’s tolerance of risk.

The only SECRET to making money in unit trusts is – BUY LOW, SELL HIGH. A very simple concept; Just like managing a retail shop, we need to buy at a lower price and sell at a higher price in order to make profit, right?

In unit trusts investment, what I’ve found out is, “TIMING” and “buying the RIGHT fund” (unit trust fund that is performing well) are the most important element. That’s why some people gain from investing, some don’t.

In an economic crisis like now (If you have noticed, is recovering swiftly now), if we have extra cash, we really need to grasp this golden opportunity TO INVEST as the market price is low. We don’t normally get this opportunity; maybe once in a lifetime, or once in 10 years. No one can guarantee whether the market would crash further down again or that would it continue to rise up and up. Nevertheless, the market price is still considerably low at the current stage, thus, the probability for the market price to rise and for us to earn money by investing is high. Do not delay, thinking that the market price will go down again, only then you invest.. Because, what if it doesn’t? Even professionals cannot predict. And even if the market price goes down again, it will surely recover, the sooner or later; This is an economic cycle.

“Buying the right fund” is important because not every unit trust fund performs well. I’m fortunate to have a very good up-line (my superior, a Unit Trust Agency Manager) who is very dedicated in monitoring the funds, who coaches me and fills me with her many years experience of monitoring of the fund prices. If you are really interested in investing in Public Mutual funds, Do let me know, and do not worry whom to look for to invest, how and where; Also, it’s my pleasure to advise you which funds are performing well/worthwhile to invest.

When God gives us the opportunity, if we don’t grasp it, it leaves us.

“When we look back, we often have more regrets on the things we don’t do rather than the things we did”…