Dollar Cost Averaging
 
 
 
 
WHAT IS
DOLLAR COST
AVERAGING?
 
 
WHY THIS
STRATEGY?
 
It is the practice of systematically investing a fixed dollar amount into a particular investment on a regular schedule – regardless of fluctuations in the market price. The result of this is that an individual buys more units when prices are low and fewer units when prices are high.
Investment markets fluctuate, as shown in chart below. Therefore, it is difficult to choose the best time to invest.
WHY THIS
STRATEGY?
 
No single investment strategy guarantees easy profits or big returns. What’s important is finding a viable long-term strategy that matches your risk appetite, financial goals, and budget. Key highlights of the strategy include:
●
Dollar cost averaging is for individuals with a lower risk appetite, less time to spare on closely following the market, or cash flow concerns (depending on the total investment amount).
●
The systematic nature of this strategy eliminates the biggest risk that inexperienced investors face: susceptibility to “panic” buy or sell decisions in response to unanticipated market movements.
●
Over time, your average investment cost may be lower than lump sum investment, which may contribute to more long-term profits (as illustrated in the following example).
 
MSCI Emerging Markets Gross Total Return Index (2008-2018 Year-to-date)
 
 
Source: Bloomberg, as of 30 June 2018. Total returns in US dollar.
 
ILLUSTRATIVE EXAMPLE
Lump sum investment versus monthly investment (dollar cost averaging)
 
  Lump Sum Investment Dollar Cost Averaging
 
Check how the two investment strategies worked in the MSCI Emerging Markets Gross Total Return Index (investment period: 60 months)
Total investment amount
 US$ 6,000 US$ 6,000
(US$ 100 x 60 months)
Unit price on 31 January 2013
 US $10
Unit price on 31 December 2017
 US $12.4254
Total number of units bought
 600 629.2233
Average cost per unit
 US$ 10 US$ 9.5356
Total investment value as of 31 December 2017
 US$ 7,455.25 US$ 7,818.37
Return for the whole investment period
 US$ 1,455.25
(+24.25%)		 US$ 1,818.37
(+30.31%)
  Lump Sum Investment Dollar Cost Averaging
 
Check how the two investment strategies worked in the MSCI Emerging Markets Gross Total Return Index (investment period: 60 months)
Total investment amount
 US$ 6,000 US$ 6,000
(US$ 100 x 60 months)
Unit price on 31 January 2013
 US $10
Unit price on 31 December 2017
 US $12.4254
Total number of units bought
 600 629.2233
Average cost per unit
 US$ 10 US$ 9.5356
Total investment value as of 31 December 2017
 US$ 7,455.25 US$ 7,818.37
Return for the whole investment period
 US$ 1,455.25
(+24.25%)		 US$ 1,818.37
(+30.31%)
 

 
Source: Bloomberg and MSCI, as of 31 December 2017. Total returns in US dollars. Index value is rebased as US$ 10 (initial unit price) on 31 January 2013. Monthly investment is made on every month end at rebased unit price. As of 31 May 2018, the geographical allocations of MSCI Emerging markets index are as follows: China (31.74%), South Korea (15.36%), Taiwan (11.65%), India (8.48%), South Africa (6.47%) and others (26.3%). The example mentioned is for illustrative purpose only. The information neither indicates any actual portfolio holdings nor constitutes any investment recommendation or advice. Different investments have different volatile patterns. Past performance is not an indicative of future performance.
 
WHAT DOES
IT MEAN
FOR YOU?
Financial Performance:
Dollar cost averaging vs lump sum investing
Performance varies for the two strategies. Dollar cost averaging has outperformed lump sum investing in certain markets or seasons. Otherwise, popular consensus lean towards lump sum investing recording higher returns for calm and experienced investors over time. But two things to keep in mind:
●
Seasoned investors can deal with the higher risk on an emotional level and react more calmly and flexibly to market movements.
●
Inexperienced investors tend to predict the market, and overreact to temporary market shifts, but finally proceed to quit with big loss.
 
 
Investment involves risk. Investors should not make investment decisions based on this material alone and should read the offering document for details, including the risk factors, charges and features of the product. Past performance is not indicative of future performance. This material has not been reviewed by the Securities and Futures Commission. Issued by Manulife Asset Management (Hong Kong) Limited.
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