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Judul : Mutual Funds: Money Cost Averaging StrategyLink : Mutual Funds: Money Cost Averaging Strategy
One thing is guaranteed in the market: it goes up and down. Thus in investing in mutual funds it is very important to know the risks involved. Yes we can lose money in mutual funds, but to minimize and manage the risk, one must constantly do additional investments and invest with a long-term horizon.
This strategy is often called: Money cost averaging. How does this strategy work?
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| Money cost averaging in mutual funds |
Money cost averaging is a strategy to systematically purchase shares of mutual funds (can also be applicable in stocks) to minimize investment risk in a fluctuating market.
This strategy is very simple. A constant amount should be invested at a specific time interval (e.g. monthly) regardless of market condition.
However, this strategy does not guarantee (as all other strategies) a profit or prevent loss thus it is important to consider one's ability to continue and stick with one's financial plan.
For example, given the following details:
Monthly Investment of 5,000
Investment Horizon: 6 months
And price per share fluctuating as shown in the table below:
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| Example of money cost averaging simplified |
Thus:
900 shares x P50.00 per share = P45,000!
So the total growth for the past 6 months is 50% of the total investment. If the person invested one-time, big-time on the first month:
Total investment on month 1: P30,000
Number of shares bought: P30,000 / 100 = 300 shares
Current market value at month 6: 300 shares x P50.00 per share = P15,000!
The investor could have lost 50% of the total investment.
Now blowing this up:
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Now blowing this up:
Mutual Funds: Money Cost Averaging Strategy
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