Having an investment is an effective way to build your wealth over time. If you’re part of a managed superannuation fund, you’re likely already benefiting from the long-term advantages of dollar-cost averaging. But what is it, and how does it actually work?
What is dollar-cost averaging?
Dollar-cost averaging is a strategy that involves investing a fixed amount of money regularly, regardless of the share price. If you’re looking for a simple way to start investing, this might be the right choice for you. For example, by investing a fixed amount every month, you automatically buy fewer units when prices are high and more units when prices are low.
What are the benefits of dollar-cost averaging?
At its core, dollar-cost averaging allows the investor a straightforward way to steadily accumulate wealth without having to worry about the volatility of the market.
Simple and convenient
Dollar-cost averaging involves investing the same amount of money at set intervals over a long period of time regardless of market fluctuation, making it a simple, stress-free way to invest.
Forget trying to time the market
Investors using dollar-cost averaging typically buy more assets when market prices are low and fewer assets when prices are high. Over the duration of your investment period, this approach can result in a lower average entry cost compared to attempting to time the market.
Good investing habits
Regular investing provides peace of mind. Even with market fluctuations, your steady contributions can help you stay on track. Dollar-cost investing, ideally through a well-diversified portfolio, gives you the best chance of long-term investment success.
Implementing dollar-cost averaging
You may be wondering how a dollar-cost-averaging strategy performs over time. Let’s look at an example combining dollar-cost averaging, regular contributions, reinvestment of distributions, and compounding returns.
Starting with an initial investment of $1,000 and set fortnightly contributions over a 10-year period, assuming an average annual return of 6%, including distributions, the table gives you an example of how the dollar-cost averaging strategy works.
How incremental investing can add up
Source: Moneysmart
Get help with investment decisions with a Geelong financial advisor
Planning for your financial future can be challenging, but LBW’s Geelong financial advisors are here to help. By understanding your financial goals, they can assist you in developing and implementing strategies tailored to achieving them.
Whether you want to explore dollar-cost averaging or learn how to manage and grow your investment funds, our experienced advisors in Geelong and Melbourne are ready to guide you.
Reach out to our team to lay the foundations for a stronger financial future.
This blog provides general educational information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances.
LBW Business + Wealth Advisors is an Authorised Representative of LBW Wealth Pty Ltd ABN 56 652 382 128 AFSL 534569. Please see our website, www.lbwca.com.au, or call 03 5221 6111 for more information on our available services.
