Investment Basics
Dollar Cost Averaging
Dollar cost averaging is a technique designed to reduce market risk through regular investments at predetermined intervals and set amounts over time. By buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price, investors can purchase more shares when prices are low and fewer shares when prices are high. Consequently, the impact of short-term market fluctuations on an investment can be mitigated and the costs of units purchased are averaged out.
This chart shows that if you invest HKD2,000 per month for 10 years, you buy more units when the price is low and fewer units when the price is high.
Hypothetical Example (Please click the image to view the enlarged version)
| Dollar Cost Averaging | Lump Sum Investment | |
| Rate of Return （per annum） |
8% | 5% |
| Monthly Contribution | $2,000 | - |
| Total Investment | $240,000 | $240,000 |
| Average Unit Cost |
$7.83 |
$10 |
| Total Investment Value at Period End | 30,645 | 24,000 |
| Total Investment Value at Period End | $520,965 | $408,000 |
According to the table, at the end of the period, the value of the total number of units bought is $520,965. This represents an annual rate of return of 8%, which amounts to returns almost 48% higher over the full 10 years when compared with a lump sum investment at the start of the period.
The above information used is for illustrative purposes only and are not indicative of any fund performance and the actual returns likely to be achieved by the investor.