How to Use Dollar Cost Averaging to Build Long-Term Wealth

Dollar cost averaging is investing a fixed amount of money into a particular investment at regular intervals, typically monthly or quarterly. This strategy, ... Thisistoinformthatbyclickingonthehyperlink,youwillbe leaving sc.com/sg andenteringawebsiteoperatedbyotherparties. Suchlinksareonlyprovidedonourwebsitefortheconvenienceof theClientandStandardCharteredBankdoesnotcontrolorendorse suchwebsites,andisnotresponsiblefortheircontents. Theuseofsuchwebsiteisalsosubjecttothetermsofuseand othertermsandguidelines,ifany,containedwithineachsuch website.Intheeventthatanyofthetermscontainedherein conflictwiththetermsofuseorothertermsandguidelines containedwithinanysuchwebsite,thenthetermsofuseandother termsandguidelinesforsuchwebsiteshallprevail. Thankyouforvisiting www.sc.com/sg Proceed IamNOTanexistingStandardCharteredCurrent/Checking/Savings Accountholder Next Next *SingPassholderswithaMyInfoprofilecanuseMyInfo toautomaticallyfilluptheform.Byclicking“Next”,youwill bere-directedtotheMyInfo portal,whichisnotownedorcontrolledbyStandardChartered Bank(Singapore)LimitedoranymemberoftheStandardChartered Group(the“Bank”).TheBankbearsnoliabilityor responsibilityoveryourusageoftheMyInfoportal. *PleasenotethatMyInfoistemporarilyunavailableatthestipulateddowntimes: Mon,Tues,Thurs,Fri,Sat: 5:00AMto5:30AM.Wed:2:00AM to6:00AM.Sun:2:00AMto8:30AM IamanexistingStandardCharteredCurrent/Checking/Savings Accountholder Next Next IamNOTanexistingStandardCharteredCurrent/Checking/Savings Accountholder Next Next *SingPassholderswithaMyInfoprofilecanuseMyInfo toautomaticallyfilluptheform.Byclicking“Next”,youwill bere-directedtotheMyInfo portal,whichisnotownedorcontrolledbyStandardChartered Bank(Singapore)LimitedoranymemberoftheStandardChartered Group(the“Bank”).TheBankbearsnoliabilityor responsibilityoveryourusageoftheMyInfoportal. *PleasenotethatMyInfoistemporarilyunavailableatthestipulateddowntimes: Mon,Tues,Thurs,Fri,Sat: 5:00AMto5:30AM.Wed:2:00AM to6:00AM.Sun:2:00AMto8:30AM IamanexistingStandardCharteredCurrent/Checking/Savings Accountholder Next Next × Telluswhoyouare Artboard-1 Iamastudent Iamanexecutive Neitherastudentnoranexecutive. Howcanwehelpyoutoday? Openanaccount ApplyforaCreditCard Takeupaloan Growmywealth Sign-upforinsurance Whatkindofloanareyoulookingfor? CashOnePersonalLoan DebtConsolidationPlan FinancialTips&ToolsforBanking HowtoUseDollarCostAveragingtoBuildLong-TermWealth Buildlong-termwealthwiththeDollarCostAveragingmethodofinvesting Theabilitytomanageone’semotionswhenmakingrationaldecisionsisakeytraitofsuccessfulinvestors.However,thisiseasiersaidthandone,whichiswhymanyinvestorswithalong-termviewusedollarcostaveragingtohelpmanageriskandremoveemotionsfromtheequationastheybuildtheirinvestmentportfolio. Whatisdollarcostaveraging? Dollarcostaveragingisinvestingafixedamountofmoneyintoaparticularinvestmentatregularintervals,typicallymonthlyorquarterly.Thisstrategy,withitspotentialtomitigatetimingrisk,ismostoftenemployedforriskierinvestmentssuchasstocksandmutualfunds(asopposedtobondsorrealestate). Mitigatetimingriskandemotionaldecision-making Thefearofenteringthemarketatthewrongtimecanleadtoinactionorhastydecisions.Dollarcostaveragingsmoothesoutfluctuations,asyoubuymoreshareswhenpricesfallandfewershareswhentheyrise.Thisisthestrategy’scost-averagingeffect. Dollarcostaveragingisalsoalong-termstrategy.Barringadversecircumstances,ithelpsyougraduallybuildupyourholdingsofaparticularinvestmentoveranextendedperiodoftime. Fromanemotionalperspective,dollarcostaveragingkeepsthingssimple.Regardlessofmarketfluctuations,youinvestthesameamountofmoneyeachmonth.Aslongasyouhavethedisciplinetosticktoit,youwillbelessemotionallyaffectedbymarketvolatilityandlesspronetomakingrashinvestmentdecisions. Howtocalculatedollarcostaveraging? Let’ssaythataninvestornamedMr.LeeinvestsS$1,000perquarterfor1yearintotheSPDRStraitsTimesIndexETF.NowthepriceoftheETFmaychangeeachmonth,buttheamountJoeinvestsneverchanges.Theoreticallyspeaking,aslongtheETFincreasesinpriceoverthattimeperiod,Mr.Leewillhavesuccessfullyuseddollarcostaveragingtoseeapositivereturnonhisinvestment. Buildlong-termwealthevenifyou’reanewbieinvestor Mostnewinvestorsdonothavelargesumstoinvestanddon’talwaysknowwheretobegin.Typically,astheirearningpowerincreases,theywillhavesparecasheachmonthtoallocatetotheirinvestmentportfolio.Dollarcostaveragingisthustheidealstrategyfornewinvestorslookingtobuildalong-termportfolio.Italsoprovidesforaveryhands-offapproachwhichcanbeidealfortheinexperiencedinvestor. Thatsaid,whiledollarcostaveragingisasimplestrategy,thereafewcaveatstokeepinmindbeforeyoujumpin. Whattoknowbeforeyouinvest Youmusthavethedisciplinetosticktoit Whenthemarketisgoingdown,youmayfeelverytemptedtosell—that’swhydespitetheadage“buylow,sellhigh”,manyinvestorsendupdoingtheopposite—ornotputinyourregularinvestment.However,thatwouldnullifythestrategy’sbasicideaofbuyingmoreofaninvestmentwhenthemarketfalls. Followingthisstrategyalsomeansthatyoucan’tfluctuateyourpositionbasedonthecurrentsharepriceofyourinvestmentintermsofincreasingtheamountyouspendonthepurchaseofmoreshareswhenthepriceislowerandlesswhenitishigher(pleaseseebelow). Conversely,youmayfeelexuberantandwanttoinvestmoreinarisingmarket.Butyoumayenduppayingahigheraveragepriceorbuyingatthetopofthemarket,whichiswhatthisstrategyisdesignedtoavoid. Youstillmustchoosetherightinvestment Dollarcostaveragingdoesnotspareyoutheworkofchoosinganappropriateassettoinvestin.Dollarcostaveragingintoabadinvestmentisstillabadinvestment. Manyinvestorsusedollarcostaveragingaspartofapassiveinvestmentstrategy,meaningtheyinvestinpassively-managedindexfundsthattrackanentiremarket.Thisreducestheamountofpersonalduediligencethat’srequiredfromthemcomparedtoresearchingspecificstocksoractively-managedmutualfunds. Watchoutfortransactioncosts Regularandfrequentinvestmentsmeanmoretransactions,whichmightmeanmorecostseatingintoyourreturns.Thisisespeciallytrueforfixedtransactioncosts,suchasabrokeragethatchargesyouS$10foreverytransaction.IfyouarejuststartingoutandonlyinvestingS$500amonth,thatrepresentsa2%transactionfee! Hence,manyinvestorswhousedollarcostaveragingprefertosticktolow-costpassively-managedindexfundswhichchargealowpercentage-basedfeeinstead. Youmayendupwithfewersharesthanyouthink Thesharepriceofaninvestmentmayriseovertime,whichmeansthatyoumaybegettingfewerandfewernewshareswitheachinvestment. Alternativestrategies Thereareseveralalternativestrategiestodollarcostaveraging,eachwiththeirprosandcons.Althoughtheycanrequireamorehandsonapproach.Soremembertochooseastrategythatbalancestheriskwithyourexpectations. ValueAveraging Onesuchexampleisvalueaveraging.Unlikedollarcostaveraging,valueaveragingmeansthatifMr.Leewaspurchasingsharesinacompany,hewouldpurchaselesswhenthepricewashighandmorewhenthepricewaslow.Whilethisstrategycanreaphighreturns,investorsalsorisknothavingenoughmoneytocontinuewiththestrategywhenmoresubstantialpurchasesarerequiredinadownmarket.Dollarcostaveragingisafarsimplerstrategybecauseit’spassiveanddoesn’trequirelargerinvestmentsduringcertainperiodsoftime. LumpSum Investorsalsohavetheoptionofinvestingalumpsumupfront.Thisisadvantageousifyouhavealargesumofmoneyreadytoinvestastheoreticallycompanystockstendtoincreaseinvalueovertimeandmoneysittingonthesidewillnotbeearningashighareturnfortheinvestor.However,iftheinvestordoesn’thavethelargesumupfrontorisn’tcomfortablewiththatstrategy,thendollarcostaveragingisthebetterwaytogo. Usedollarcostaveragingasastarterstrategyforbuildinglong-termwealth Thereisnosuchthingasaperfectinvestmentstrategy.However,dollarcostaveragingisaconservativestrategythathelpstobuildlong-termwealth,especiallyifyouarejuststartingoutonyourinvestmentjourney.Ensureyousticktotheplan,soyoucanreaptherewards. Doyouwanttoknowmoreaboutthevariousinvestmentstrategiesyoucanusetohelpgrowyourwealth?SpeaktooneofourfinancialadvisersatStandardCharteredtodayandletushelpyou.  ThisarticleisbroughttoyoubyStandardCharteredBank(Singapore)Limited.Allinformationprovidedisforinformationalpurposesonly. Thisarticleisforgeneralinformationonlyanditdoesnotconstituteanoffer,recommendationorsolicitationtoenterintoanytransaction.Thisarticlehasnotbeenpreparedforanyparticularpersonorclassofpersonsandithasbeenpreparedwithoutregardtothespecificinvestmentorinsuranceobjectives,financialsituationorparticularneedsofanyperson.Youshouldseekadvicefromalicensedoranexemptfinancialadviseronthesuitabilityofaproductforyou,takingintoaccountthesefactorsbeforemakingacommitmenttopurchaseanyproduct.Intheeventthatyouchoosenottoseekadvicefromalicensedoranexemptfinancialadviser,youshouldcarefullyconsiderwhethertheproductissuitableforyou.Youarefullyresponsibleforyourinvestmentdecision,includingwhethertheinvestmentissuitableforyou.Theproducts/servicesinvolvedarenotprincipal-protectedandyoumayloseallorpartofyouroriginalinvestmentamount. ReadMore ReadLess