Showing posts with label phasing in your investments. Show all posts
Showing posts with label phasing in your investments. Show all posts

Monday 1 February 2010

Two techniques for Getting your timing right: 'dollar cost averaging' and 'phasing in' your investments

Experience has shown that investors can benefit from being patient.  Impatience is your big enemy. 

Too often investors panic and sell their shares and equity unit trusts at a low, which could result in substantial losses.

There are two techniques:
  • dollar cost averaging, and
  • phasing in
which can diminish the negative impact of buying and selling at the wrong times.


Dollar cost averaging

Those who continue investing at regular intervals in the expectation that the market will recover, benefit from dollar cost averaging.

Dollar cost averaging can be used to great effect with unit trusts, because as you buy more units for the same amount as prices fall (or fewere units as prices rise), you will ultimately pay a lower average price for your units.


Phasing in your investments

In times of uncertainty new unit trust investors are faced with a tough choice: 
  • should they invest a lump sum, or
  • should they phase in their investment over a period? 
They have two possibilities:

A lump-sum investment can be made in
  • unit trusts with a large cash element,
  • a share component that does not correlate with the general direction of the stock market, and
  • a portfolio manager who does not hesitate to take action.

Phasing in:  Prudent or less experienced investors can consider
  • phasing in their investments over some months,
  • potentially benefiting from lower prices because of downward reactions.