Dollar Cost Averaging

Here's another financial tip. Dollar Cost Averaging or DCA in short. Which is a terminology that says one should invest into the market bit by bit instead of putting one lump sum, because the former ended up produced more shares/units which yield to higher in return.

Let's say Andy and Tony would like to invest $3,000 into the same fund. Andy make it a lump sum investment at the beginning of the year, while Tony spreads his investment into 12 payments, which equivalent to $250 per month.

Believe it or not, at the end of the year, Tony will have an investment that is worth more than Andy although they investment in the same fund and enjoying the same buy price and sell price throughout the year.

	Andy: Lump Sum Investment	Tony: Dollar Cost Averaging
Average Price/Share	$10.00	$9.25
Shares Accumulated	300	332.94
Current Value (12 months)	$3,000	$3,329.37

What actually happening is when the share price drop, Tony able to absorb more units and while the share price rise, Tony will buy in less units since he invested in a bit by bit manner. Perhaps you can have a better illustration from the image below :)

Source: http://www.bt.com.au/investors/investment-education/investment-basics/basics_12.asp