190 191
PERSONAL FINANCE
Managing investmentsMay June July MONTHINVESTOR B
US$200
dollars buys
10 sharesInvestor A
US$1,400 buys
70 sharesInvestor B
US$1,400 buys
73 sharesAVERAGE
PRICE
US$19.18US$20VS
Gains three
extra shares
for same
investmentINVESTOR B
US$200
dollars buys
12 sharesINVESTOR B
US$200
dollars buys
10 shares ❯❯DCA can limit gains
in a booming market.
❯❯If the share price rises
gradually over time
DCA means paying
more per share on
average.WARNING
❯❯Timing the market to
get the best unit price is
very tricky.
❯❯A fluctuating share
price means a lump
sum pays more per
share on average.WARNING
“ The individual investor should act consistently
as an investor and not as a speculator.”
Benjamin Graham, 20th-century, British-born, US economist and investorWHAT IS MARKET VOLATILITY?
Volatility is the degree of variation
in a trading price over time. It is
measured by looking at the
standard deviation of returns –
that is how spread out returns arefrom an average value. Lower
volatility means a share’s price
does not fluctuate dramatically,
but changes in value at a
steady pace.❯❯Lump-sum investing Although high
returns are possible, putting large single
sums into the market tends to require a
more impulsive, or short-term approach,
which may be counterproductive.
❯❯Market conditions Dollar-cost
averaging means investors do not have
to study the details of market behaviour
to maximise their returns.
❯❯Investments from income By regularly
investing directly from regular income,
investors can keep cash on hand for
other purposes or emergencies.NEED TO KNOW
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