With global political uncertainty, domestic debt serviceability concerns, and a weak Australian Dollar, our domestic market has been and is expected to continue experiencing increased volatility over the short-term.
Although this may seem like a concerning time to invest, volatile market conditions propose significant opportunities for intelligent investors where value and growth opportunities are still present in selected stocks.
One strategy to maximise your investment potential during turbulent market conditions is to establish a dollar cost averaging strategy. Dollar Cost Averaging (DCA) can dramatically increase your wealth over time. The purpose of this strategy is to reduce market timing risk. This essentially means that you are avoiding purchasing a lump sum of units at their peak price, but rather investing gradually over time to average out the price per unit.
The below table illustrates the benefit of Dollar Cost Averaging when $100 per week has been invested over a 20-week period;
|Week||Amount Invested ($)||Unit Price ($)||Units Purchased|
Total Amount Invested: $2,000
Total End Value: $2,234*
Gross Capital Gain: $234
*Total Units Purchased x End Value Per Unit (rounded)
At the end of the investment period the investor has increased their portfolio value by $234 without the unit price ever increasing more than the starting price.
Without thorough research and due-diligence checks, you may find you are investing your money into a dud stock which may not offer ideal capital appreciation or income. Or, the company may be exposed to significant risk resulting in forced closure.
All information provided is general in nature. This article has not taken into consideration your personal circumstances. If you are interested in investing, please contact us to arrange a complimentary meeting to discuss your goals.