190 191
PERSONAL FINANCE
Managing investments
May June July MONTH
INVESTOR B
$200 dollars
buys 10 shares
Investor A
$1,400 buys 70
shares
Investor B
$1,400 buys 73 shares
AVERAGE
PRICE $19.18
$20
VS
Gains three
extra shares
for same
investment
INVESTOR B
$200 dollars
buys 12 shares
INVESTOR B
$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
WHAT 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 are
from 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 behavior to
maximize 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
US_190-191_Dollar_Cost_Averaging.indd 191 13/10/2016 16:21