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Thursday, December 4, 2008

Dollar-Cost Averaging - DCA

Dollar-Cost Averaging - DCA By Zhuge Liang

The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.

Also referred to as a "constant dollar plan".

Eventually, the average cost per share of the security will become smaller and smaller. Dollar-cost averaging lessens the risk of investing a large amount in a single investment at the wrong time.

For example, you decide to purchase MYR 10,000 worth of XYZ each month for three months. In January, XYZ is worth MYR 33, so you buy 3000 shares. In February, XYZ is worth MYR 25, so you buy 4000 additional shares this time. Finally, in March, XYZ is worth $20, so you buy 5000 shares. In total, you purchased 12,000 shares for an average price of approximately MYR 25 each.

In the U.K. , it is known as "pound-cost averaging".


HAPPY INVESTING

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