How to Invest with Limited Time, Knowledge and Money

Have you ever thought of investing but face these challenges?

“I have no time!”

“I don’t have enough money”

“I don’t know where to start”

Many ppl are not aware that there’s actually a simple & effective way to invest without spending a lot of time, and you can get started even with limited funds and investing knowledge.

This strategy is known as Dollar Cost Averaging (DCA)

What is DCA?

Dollar Cost Averaging is a wealth building strategy of investing a fixed amount at regular intervals over a long period.

Bascially, you invest a fixed amount to purchase an investment at fixed intervals e.g every month or every year, regardless of the current prices. The key is to do this consistently, regardless of whether the market goes up or down. Over time, you would have accumulated a sizable investment portfolio at an average market price.

How does it work?

DCA can be easily implemented and automated through a regular savings program with the banks, insurance companies or other financial instituitions. The pre-determined amount is automatically transferred via Giro each month and invested into the instrument of your choice.

Typically it is applied to investing in stocks or a basket of stocks, known as unit trusts.

Dollar Cost Averaging in Action

Let’s take an example of an investor who decides to set aside $500 per month to invest in a unit trust focusing on Singapore blue chip companies.

The $500 is used to purchase various number of units each month, depending on the monthly price (shown on the chart). When prices are lower, he effectively acquires more quantities of units, when prices are higher, he gets fewer units.

It turned out that the unit trust price actually fell from $1.40 in Jan to $1.20 in Aug. If someone had invested a lump sum of $4000 back in Jan, he would be now sitting on a loss of 14% by now.

How about with dollar cost averaging?

Over the 8 months, this investor invested a total of $500 x 8 = $4000, and acquired a total of 3731.9 units by August.

Based on the current Aug price of $1.20, his total investment value is now worth $1.20 x 3731.9 = $4478.3, which is a +12% return, even though the market actually went down!

This is the magic of dollar cost averaging, because by buying in at different prices over time, his average cost price is in actual fact $4000/3731.9=$1.07. Hence even though the market price has fallen to $1.20, he is still profitable.

Why does DCA work?

1) It takes market timing out of the equation

Many beginner investors are unsure of when is a good time to invest and find it tedious to monitor the markets.

Many end up waiting for “the day I’m more prepared” or “the day I learn how to do this properly”. Meanwhile their money sits away in the bank, losing value every day.

DCA frees up time and provides a disciplined, consistent approach to investing. By investing a fixed amount regularly, you don’t have to worry about monitoring the market to see if it’s rising or falling, and troubling over whether it’s a good time to enter.

You can now set your investing on auto-pilot.

Over the long run, markets generally trend up and by securing an average investment price, you are well-positioned to see your investment grow overtime.

2) You can start young even with limited funds and limited knowledge

Time is the essence when it comes to investing. Given sufficient time, the power of compounding will work wonders, just like a snow ball gathering strength and momentum as it rolls down the mountain.

I often hear beginner investors wanting to invest in quality blue chip companies e.g banks and property stocks but are held back by the huge capital required. Many feel that they don’t have enough money to start investing and end up wasting the precious opportunity of time.

Applying DCA on unit trusts is one way that gives them an avenue to participate in these big companies’ growth.

Unit trusts consists of a basket of various stocks and are professionally managed by a team of people known as fund managers. Investors funds are pooled together and used to invest in various company’s stocks.

Unit trusts provide a cost effective way for retail investors to invest into blue chip companies on a regular basis.

You can start investing into unit trusts with as low as $100/mth compared to saving up a lump sum to purchase individual company shares.

You are also invested in a diversified portfolio of companies from across different industries or countries. This reduces the risk of any one company’s stock falling and impacting your portfolio performance.

DCA with unit trust allows you to start participating in market growth with managed risk and develop the habit of regular investing from young.

Who can use this?

• Fresh graduates who wants to start investing with limited funds
• Busy working adults who want to grow their retirement nest egg and have no time to monitor investments
• Young parents looking for a systematic way to accumulate funds for their children’s education

Those who are keen to learn how to invest lump sums of money can subscribe for my free Secrets to Successful Investing.

But if you are a busy working adult with limited time to monitor your investments, or someone with limited funds and investing knowledge, dollar cost averaging is definitely a strategy that can help you get started in investing without much hassle or stress!

To Your Success and Happiness,

Yong Hui