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Smoothing market ups and downs
Buy more for less, with dollar cost averaging

You may already know that a regular investment plan is a proven strategy to accumulate wealth over time. But did you know that it could also help you buy more units in your chosen managed fund for less money, especially in volatile markets?

The secret is something called dollar cost averaging.

It works like this: each month, you invest the same amount in a managed fund, regardless of what’s happening in the market. Over time, the fund’s unit price will go up and down in step with market movements. So, while you’ll get fewer units for your money when the market’s up, you’ll also enjoy some bargains when it's down.

The result is that you end up buying more units when they’re cheaper, and fewer when they’re more expensive. Overall, your average cost in buying units over time will be lower. As long as the market doesn’t simply rise or fall, you’ll eventually come out ahead, without having to try and time the market.

Dollar cost averaging in action: investing $250 a month

Month Investment Unit price Units bought
1 $250 $1.00 250
2 $250 $0.90 278
3 $250 $0.80 313
4 $250 $0.90 278
5 $250 $1.00 250
6 $250 $1.20 208
Total cost $1,500
Current value $1,891
Average unit price $0.97

Making volatility work for you

Dollar cost averaging is a great way to smooth out investment returns and make volatility work for you, without trying to second guess future market fluctuations, which is also known as timing the market. But it isn’t foolproof. In particular, there are two situations where dollar cost averaging may not help:

  1. When the trend of the market is sharply up or
  2. The market is trending sharply down.

However, when the market is trading sideways, as it has been for much of the time since the global financial crisis, then dollar cost averaging can work in your favour.

Next steps

  1. Learn about the power of compounding returns.
  2. Work out your risk profile.

Switch and save

It only takes minutes to switch your existing managed funds to InvestSMART, but you can enjoy the savings year after year:

  1. Fill in our fast online form.
  2. Print the form, then sign it and send it by:

    Email

    admin@investsmart.com.au

    Fax

    1300 880 260

    Mail

    InvestSMART Financial Services Pty Limited
    Reply Paid 4477
    Sydney NSW 2001
  3. You'll start saving straight away. And once every year, on the anniversary of when you switched to InvestSMART, you’ll receive your trail commission rebate, either as a cheque or via electronic fund transfer (EFT).
  4. To receive your TrailCap payments via electronic fund transfer (EFT) to an Australian bank account — just complete the EFT section in the online application form.
    If you have already nominated InvestSMART as your fund broker and have been receiving TrailCap cheques from us but would rather your money is deposited directly into your bank account, you can let us know your EFT details in the InvestSMART EFT payments form.